GoldCore Update: The Gold Silver Ratio Means Silver Remains a Compelling Buy

Gold
Gold has been as high as $1,127.50/oz overnight on dollar weakness but has since given up the gains in late morning London trading as the dollar has recovered its earlier losses. Gold is currently trading at $1,116.50/oz and in euro and GBP terms, gold is trading at €763/oz and £688/oz respectively.

Increasing risk appetite on hopes that the Dubai rescue bailout may alleviate the threat from the sovereign default is likely pressuring gold. Technically, gold fell last week and is near its monthly lows and momentum traders will likely further short the market but investor and central banks will likely continue to buy on the dips providing a strong underlying support for gold above the psychological $1,000 per ounce mark.

The gold market will also be keeping an eye on the latest central bank rate policy meetings (which get under way Tuesday and conclude Wednesday). The Federal Reserve, led by Chairman Ben Bernanke,  is widely expected to hold the federal funds rate at historic lows near zero percent. This will likely make the long overdue dollar rally of short duration and continuing record low interest rates will further support non interest yielding gold.

In the short term, as ever, anything can happen and it will be interesting to see if gold can rally into year end and finish above $1,200/oz. In the medium term, $1,500/oz is the next ‘round figure’ target and the continuingly strong fundamentals could see that figure attained by as early as mid 2010.

Silver
Silver dipped to $17.24/oz overnight but it has moved upward since. Silver is currently trading at $17.49/oz, €11.84/oz and £10.70/oz. With the gold: silver ratio at 65 ($1117/$17.10/oz), silver remains a compelling buy at these levels and will likely be the surprise outperformer in 2010 as it was in 2009 (up by more than 51% YTD as per table). Silver’s industrial uses should mean that the gold/silver ratio will likely gradually regress to the average in the last 100 hundred years which is close to 40:1. If the tiny silver market was to see real funds enter it than the ration could return closer to the historical average of 15:1 as it did as recently as 1980.

Silver remains less than half of its nominal record price in 1980 and very undervalued from a historical basis (see our recent research article on silver – http://www.goldcore.com/research/silver-set-soar-it-did-1970s).

Platinum Group Metals
Platinum is trading at $1,363/oz and palladium is currently trading at $364/oz. While rhodium is at $2,175/oz.

Mark OByrne

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