Silver investing has been difficult the last two decades. For about 200 years, the ratio of the price of gold to the price of silver fluctuated in a narrow range between 15:1 and 20:1. This made great sense, because geologists claim the earth's crust contains about 17 times as much silver as gold. Also, both gold and silver were used as money during this 200-year period.
In the last two decades, if anything, the ratio should have decreased because of the increasing demand for silver in industrial applications. Industry consumes over 50% of the silver mined each year. But the ratio did not decrease, as it should have. And most of the silver investing public, and many professionals, lost money.
The price of silver should have moved with gold, or if anything, moved higher, in relation to the price of gold, due to its relative scarcity. But the price of silver was manipulated lower for over two decades.
In the last half of 2010 this manipulation seems to have ended. The biggest manipulator announced the closing of its commodity trading desks, lawsuits were filed, and investigations were undertaken. During the last few months of the year, the gold to silver price ratio dropped from about 63:1 to about 46:1. In the middle of December, the biggest offender announced, without admitting wrongdoing, that it would unwind its massive short position in the silver futures market.
For the first time in decades the price of silver seems to be moving free of manipulation.
From 1984 through 2010 the ratio fluctuated between 46 and 100, with the lowest ratio the last trading day of 2010 . I expect the ratio to continue to continue to ratchet down until it reaches at least the long-time norm of about 17:1.
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