Silver has proven itself, time and again, to be a safe haven for investors during times of economic uncertainty and, as such, with the current economy in difficulty the silver market has become a flight to quality investment vehicle. The 49% increase in silver in 2009 attests to that in spades (albeit up only 10% in the first 6 months of 2010). During the last parabolic phase for silver in 1979/80 silver went from a low of $5.94 on January 2nd, 1979 to a close of $49.45 in early January, 1980 which represented an increase of 732.5% in just over one year. Such a percentage increase from the current price for silverwould represent a future parabolic top price of $155. Frankly, such prices seem impossible in practical terms but that is what the numbers tell us.

Silver:Gold Ratio

How both gold and silver perform, in and of themselves, does not tell the complete picture by a long shot, however. More important is the price relationship – the correlation – of one to the other over time which is called the silver:gold ratio.

Based on silver’s historical correlation r-square with gold of approximately 90 - 95% silver’s daily trading action almost always mirrors, and usually amplifies, underlying moves in gold. With significant increases in the price of gold expected over the next few years even greater increases are anticipated in silver’s price movement in the months and years to come because silver is currently seriously undervalued relative to gold as the following historical relationships attests.

Let’s look at the silver:gold ratio from several different perspectives:

- Over the past 125 years the mean silver:gold ratio (i.e. 50% above and 50% below) has been 45.69 ounces of silver to 1 ounce of gold.

- In the last 25 years (since 1985) the mean silver:gold ratio has increased to 66.9:1

- The present silver:gold ratio is range-bound between 63:1 and 70:1 (66.77:1 at the end of June 2010).

- Interestingly, during the build-up to the parabolic blow-off in 1979/80 silver outpaced gold going up 732.5% vs. gold’s 289.3% causing the ratio to drop from 38:1 in January 1979 to 13.99:1 at the parabolic peak for both metals in January,1980.

Conclusions:

There are many! Let’s look at the various price levels for gold and the various silver:gold ratios mentioned above one by one and see what conclusions we can draw.

First let’s use the mid-year (June 30th, 2010) price of $1243 for gold and apply the various silver:gold ratios mentioned above and see what they do for the potential % increase in, and price of, silver.

Gold @ $1243 using the current 66.77:1 silver:gold ratio puts silver at $18.61 (June 30/10)

Gold @ $1243 using the above 45.69:1 silver:gold ratio puts silver at $27.20 (i.e. +46.2%)

Gold @ $1243 using the above 13.99:1 silver:gold: ratio puts silver at $88.85 (i.e. +377.4%)

Now let’s apply the projections made above by the various economists, academics, gold analysts and market commentators listed above to the silver:gold ratio and see what that suggests is the parabolic top for silver.

@ $10,000 Gold

Gold @ $10,000 using the silver:gold ratio of 66:1 puts silver at $150

Gold @ $10,000 using the silver:gold ratio of 45:1 puts silver at $222

Gold @ $10,000 using the silver:gold ratio of 14:1 puts silver at $714!!

@ $5,000 Gold

Gold @ $5,000 using the silver:gold ratio of 66.1 puts silver at $75

Gold @ $5,000 using the silver:gold ratio of 45:1 puts silver at $111

Gold @ $5,000 using the silver:gold ratio of 14:1 puts silver at $357

@ $2,500 Gold

Gold @ $2,500 using the silver:gold ratio of 66:1 puts silver at $38

Gold @ $2,500 using the silver:gold ratio of 45:1 puts silver at $55.50

Gold @ $2,500 using the silver:gold ratio of 14:1 puts silver at $178.50

From the above it seems that, any way we look at it, physical silver is currently undervalued compared to gold bullion and is in position to generate substantially greater returns than investing in gold bullion.

Summary

History will look back at the artificially high silver to gold ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they’re all an illusion. This fiat currency experiment will end badly in a currency crisis. The wealthiest people will be those who bought silver today and were smart enough to research and pick the best silver mining stocks and warrants.

Indeed, while gold’s meteoric rise still has room to run, silver’s run is yet to get started. As such, it certainly appears evident that now is the time to buy all things silver.

Lorimer Wilson is the Editor of both www.FinancialArticleSummariesToday.com(a sight/site for sore eyes and inquisitive minds) and www.munKNEE.com (a site consisting of edited excerpts of the internet’s most informative articles on money matters). He can be reached at editor@munknee.com