this is from gene arensberg, who says silver is undervalued relative to gold:

Over the past two reporting weeks the open interest for silver has fallen just over 20,000 contracts as silver declined exactly $1.00. At this pace of open interest reduction we believe the silver futures market would reach what we consider extremely bullish low-open-contract levels (and imbalanced relative to gold) with silver still somewhere in the $16s.

With the gold/silver ratio still elevated there seems to us to be plenty of pent up bull side horsepower apparently sitting on the sidelines (as we are) waiting to pounce.

Summation

The sidelines are a port in a storm, but not a good place for a trader to hide in forever. The LCs seem to be in a hurry to get smaller in their net short positioning for gold and to a lesser extent silver. Gold really hasn’t corrected all that much, only about 6%, but it’s clear from the COT data this week the largest of the largest commercial “hedgers” and short sellers are much less confident of lower gold and silver prices than they were just one and two weeks ago.

We continue to believe that silver is strongly undervalued relative to gold, but so far we have to acknowledge that the gold/silver ratio refuses to show “support” for the second most popular precious metal.

We still think that significant to strong dips can be bought, but not without appropriate new-trade trailing stops for protection and peace of mind.

http://www.gotgoldreport.com/20100710COTflashPDF.pdf