What is interesting about all of this is that none of the mainstream gold/silver bug pundits have called the market right for the past 6 months or so (at least the ones I read regularly). Thus, I believe that nobody really knows for sure where the market is headed short term.
What we have witnessed in the recent past is the power of the paper markets to move the price quite easily, irrespective of market fundamentals that should be influencing the price of PMs now, ie, world market instability, rampant printing/easing, excessive debt, corrupt financial institutions, etc. Right now with all of what is going in in Europe, here and elsewhere, such as war and rumors of war, etc, gold and silver should be going up and not down relative to other investments. But they are not, and as it has been said, the market is never wrong. Thus, it is what it is.
I too don't believe the past, artificial, gold/silver ratio means much, other than perhaps showing at any given time which one is a better buy (silver when the ratio is higher, gold when lower). But to say that the ratio should be any particular number does not seem logical to me, in that in the past the ratio was fixed artificially by the gov and as MTS said the two metals have different functions in a sense.
But the best way to come up with a guess or prediction on where the prices of gold and silver are going is to study history. By that I don't mean PM charts, but what has happened at particular times when certain economic situations arose. Inflating the currency and adding to the national debt endlessly over time cannot lead to a healthy economy in the end. I still believe that there is really no possible way to fix what has been done with respect to our national debt and the fact that much of our manufacturing industry is forever lost to overseas. Even service jobs are now being outsourced. Until Americans are willing to work for less than "Bob" from the India call center, etc, those jobs are not coming home. At some point our debt will reach its limit, maybe 16 trillion, 20 trillion, who knows? To think it can go on forever without any ill effect on the currency and economy is delusional. When paper assets collapse or people lose faith in them, they go to gold and silver. It has happened over and over in the past, and I think will happen again, probably sooner than later.
In the past 100 years there have been mostly times where PMs were not as profitable as investments as compared to stocks, bonds, etc. But there have been a few times where PMs made gains that outperformed those other investments. Clearly the past 10 years have been one of those "times" where gold and silver outperformed other investments in a general sense.
Personally, I don't believe that "time" is over. All good bull markets have some periods of consolidation where the commodity moves down a bit or sideways. Further, due to all the various "paper" plays for PMs that now exist, it is not hard for large money players to have an influence in whichever direction they desire without having to own the underlying physical metal or even bring it into the picture directly.
The key with whether or not the current PM bull market will continue much further depends on whether or not the physical metal will become more in demand, and whether the paper plays will be eschewed by the big and small money players in favor of physical. Unlike paper plays, physical plays are limited by the supply available. Physical supply of PMs cannot be printed or produced at will like paper plays. There are continuing reports of countries buying up loads of gold and some are having their gold repatriated after storing it in other countries for years. They know something I believe.
Even though I don't listen much anymore to what the pundits say on a daily basis, I still believe they are correct in that someday over the rainbow silver will top $100 per ounce and gold $3000 or more. I might be wrong or I might be right. Either way, I have made my bets by placing a large portion of my investment capital into gold, silver and platinum over the past few years. I plan to continue dollar cost averaging as cash flow allows, and if we do see a big downtrend I will load up on silver as much as possible, since I believe silver has a better chance for a higher percentage gain because unlike the other two I mentioned, it has not yet broken its one time high, unlike gold and platinum which have.
I hate to sound negative all the time, but I believe 2012 will have some bad things happening in the world which will be PM positive, such as more Euro mess getting worse, possible Iran issues, more bank failures, etc, etc.
All just my opinion.
Jim
