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Eric Sprott: "Expect The Gold To Silver Ratio To Hit Single Digits"

Tyler Durden's picture




 

From Eric Sprott and Andrew Morris

Follow The Money

You know silver’s doing well when the commentators start giving it the ‘gold’ treatment. Silver’s recent rise has been so spectacular that it’s caught many investors off guard. It’s natural to be sceptical when you don’t know the fundamentals driving strong performance, and many pundits and commentators have been quick to downplay it as a result - much like they do towards gold when it enjoys a run. Silver is also an awkward metal for them to categorize. Is it a commodity, a monetary metal, or both? And which side is driving demand? If it’s industrial demand, that’s ok, because that’s bullish. But if it’s investment demand for silver as ‘money’, well then that’s sort of bearish, isn’t it? The fact remains that most commentators have failed to grasp the monetary shifts that silver is signaling today, and in doing so they’ve failed to appreciate just how high it could actually go.

The financial media’s failure to grasp the benefits of precious metals ownership continues to perplex us, and it’s not just the commentators who are prone to perpetual disbelief. The sell side analysts are equally as irresolute. According to Bloomberg, the ‘expert’ consensus silver price forecast for 2011 is $29.50, representing a 31% discount from the current spot price. This same group of analysts also predicts prices will decline another 25% in 2012 and a further 9% in 2013 to $20 an ounce. When you consider that the silver price has appreciated by over 21% annually over the past 10 years, these forecasts suggest a very dramatic change in the long-term trend. Will this reversal come true? Probably not. These were the same analysts who predicted that spot silver prices would average $18.65 this year - so they’ve missed the mark by over 100% thus far.

We don’t mean to bash the silver analyst community, and there are several whom we highly respect, but it is important for silver investors to appreciate that these price forecasts are being plugged into financial models that dictate equity valuations. These models are used by traders, bankers, analysts, and portfolio managers to derive valuations for silver stocks and create asset allocations for portfolios. To anyone questioning current silver equity valuations, we would ask: what price assumptions are you using? Of course we as allocators of capital are thankful for this phenomenon, as it allows us to buy our favourite silver stocks on the cheap, knowing full well that the herd will be following behind in due course as those backward-looking forecasts get ratcheted higher.

How can we be so confident that the price of silver will continue on its upward trajectory? Our thesis is premised on the most rudimentary of economic principles – supply and demand.

One of the key indicators that we’ve been monitoring is the gold/silver ratio. Much has been written about the ratio of late, and we won’t go into great detail on the subject, other than to note that the last time money was synonymous with defined amounts of gold and silver, the ratio was set at 16-to-one. In fact, for most of the past millennium, one ounce of gold would have been convertible to somewhere between 10 and 16 ounces of silver - an amount roughly in line with the relative occurrence of each mineral within the earth’s crust.1 For the better part of the past century, due to the world’s abandonment of bimetallism and then the gold standard, the gold/silver ratio has fluctuated widely, twice reaching lows near the 15-to-one mark and a high of 100-to-one back in the early 1990’s. The most recent high reached in the latter part of 2009 was nearly 80-to-one. Since then the ratio has been tumbling to where it stands now at 35-to-one – which reflects the incredible outperformance of silver over that time period. In our opinion, this ratio will continue to move lower, driven by nothing more than basic supply/demand fundamentals.

The US Mint, which is the world’s largest silver and gold coin manufacturer, recently reported that it had sold 13 million ounces of silver coins and 370 thousand ounces of gold coins on a year-to-date basis.2 This means that the US Mint is now selling roughly equal amounts of silver and gold in dollars so far this year. Furthermore, bullion dealers like Sprott Money and GoldMoney have confirmed with us that they are now selling more silver than gold in dollar terms. For additional confirmation of this investment trend, just look at the flows for the two largest gold and silver ETFs. Investors have withdrawn approximately $3 billion from the GLD so far this year while the SLV has seen net inflows of $370 million over the same period. Dollar for dollar, investors are allocating as much if not more money to silver than to gold. And why shouldn’t they? Silver is much more of a "precious" metal than the current ratio of 35-to-one would suggest.
To explain, we must first address mine supply. In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold.3 The world also produced an additional 215 million ounces of silver and 53 million ounces of gold from recycled scrap.4 Adding both together brings us 951 million ounces of silver and 139 million ounces of gold supply, for a ratio of nine ounces of silver to one ounce of gold.

Interestingly, this 9-to-one ratio is very similar to the ratio of available in-situ silver and gold reserves. The U.S. Geological Survey estimates that there are current in-situ reserves of approximately 16.4 billion ounces of silver versus 1.6 billion ounces for gold, or about a 10-to-one ratio.5

The case for silver is even more compelling when one considers the ramifications of its dual role as both an investment and industrial metal. Last year, non-investment demand for silver (which includes industrial, photographic, and silverware demand) totaled approximately 610 million ounces.6 This represents approximately 64% of primary supply, leaving approximately 341 million ounces to satisfy investment demand.7 On the gold side, industrial usage totaled 13 million ounces, or about 10% of primary supply, leaving approximately 125 million ounces left over for investment demand.8 So, after netting out the industrial usage the primary supply left over for investment demand is about 2.7 times that for gold. However, if we convert those ounces to dollars at current prices, we’re left with $15 billion worth of silver available for investment versus $186 billion worth of gold, or a one-to-13 ratio of silver to gold! This means that in terms of primary supply, silver only has 8% of the capacity for investment that gold does despite having equal if not more dollars flowing into it.

Now, it’s true that another potential source of supply is the very silver that investors already own - and at the right silver price these inventories of silver and gold bullion may be sold into the market to supplement any supply shortfalls. As we’ve noted previously, however, due to decades of underinvestment, the amount of silver bullion inventories are actually extremely small, even compared to those of gold.9 Recent estimates suggest that reported silver bullion inventories stand at roughly 1.2 billion ounces versus 2.2 billion ounces of gold bullion, or roughly a 0.5-to-one ratio.10 To put that amount in perspective, consider that at present there is only $52 billion worth of silver bullion/coins and over $3.3 trillion worth of gold in inventory which could potentially be recirculated into the market. Converting this to a ratio, you get a one-to-63 ratio of silver to gold inventories. So how is silver still priced at 35-to-one?!

All indications lead us to believe that there is now roughly an equal amount of investment flowing into silver and gold on a dollar-for-dollar basis. And although the price ratio of silver to gold has fallen substantially since the highs of 2009, our analysis strongly suggests that this ratio must move lower to restore a fundamental balance between supply and demand. Only time will tell how much lower it will go, but we would not be surprised to see it hit single digits before settling into a more sustainable equilibrium.

What the so-called silver ‘experts’ neglect to account for in their models and projections is that the fiat money experiment has failed. And in this context, we believe the Market has assigned world reserve currency status to gold - not USD, not EUR, and not JPY. In our opinion, gold’s continued appreciation vis-à-vis every currency is assured because the great flight from fiat has only just begun. Like gold, silver also has a long monetary history, and as such, investors are now also buying silver as protection from the ravages of fiat currency debasement. Yet, when compared to gold, it is silver that offers the most attractive value proposition by virtue of the gross mispricing of its scarcity, which, we might add, has existed for many years. Thus, in our opinion, as this new bimetallic standard takes root, silver investors will continue to be justly rewarded with marked outperformance. We truly believe that this is the investment opportunity of a lifetime, and increasingly so, others are taking heed. What is clear to us is that with equal investment dollars now flowing into silver and gold, the current 35-to-one ratio is unsustainable and has only one direction to go: lower.
________________________________________
1 Farchy, Jack and Meyer, Gregory. "Americans feather nests with silver Eagles." (March 29, 2011). Retrieved on April 12, 2011 from: http://www.ft.com/cms/s/0/fe701e4e-5a1f-11e0-86d3-00144feab49a.html#
2 Unser, Mike. "US Mint Sales: American Eagle Bullion Coins Take Lead." (April 6, 2011). Retrieved on April 12, 2011 from http://www.coinnews.net/2011/03/30/us-mint-sales-american-eagle-bullion-coins-take-lead/
3 [Silver:] "Silver Investment the Dominant Driver of a Remarkable 2010." The Silver Institute (April 7, 2011). Retrieved on April 12, 2011 from: http://www.silverinstitute.org/pr07apr2011.php. [Gold:] "Gold Demand Trends, Full Year 2010." World Gold Council (February 2011). Retrieved on Apri 12, 2011 from: http://www.gold.org/about_gold/market_intelligence/gold_demand/gold_demand_trends/
4 Ibid.
5 "Mineral Commodity Summaries 2011." US Geological Survey (2011). Pg. 66-67, 146-147
6 "Silver Investment the Dominant Driver of a Remarkable 2010." The Silver Institute (April 7, 2011). Retrieved on April 12, 2011 from: http://www.silverinstitute.org/pr07apr2011.php.
7 In our view jewellery demand is considered a component of investment demand
8 "Gold Demand Trends, Full Year 2010." World Gold Council (February 2011). Retrieved on April 12, 2011 from: http://www.gold.org/about_gold/market_intelligence/gold_demand/gold_demand_trends/
9 See "The Double-Barreled Silver Issue" from November 2010
10 "Sprott Physical Silver Trust Prospectus" (October 28, 2010) Pg. 38

 

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Wed, 04/20/2011 - 10:39 | 1187995 Josh Randall
Josh Randall's picture

Lookin' for another dip to buy

Wed, 04/20/2011 - 10:50 | 1188043 Turd Ferguson
Turd Ferguson's picture

Give it a few more hours and then wait for Tuesday. Please read:

http://tfmetalsreport.blogspot.com/2011/04/wednesday-wow.html

Wed, 04/20/2011 - 10:56 | 1188073 Cash_is_Trash
Cash_is_Trash's picture

Sounds like a great day to go shopping! I like the miners; UXG and SSRI.

Sound money, bitchezzz

Wed, 04/20/2011 - 11:54 | 1188442 centerline
centerline's picture

Great site Turd.  I stop by daily.

Wed, 04/20/2011 - 23:35 | 1191142 TheGoodDoctor
TheGoodDoctor's picture

If we are lucky we can stop by more than once daily. :)

Wed, 04/20/2011 - 12:10 | 1188496 Josh Randall
Josh Randall's picture

Roger - good insight as always Turd

Wed, 04/20/2011 - 11:13 | 1188178 Long-John-Silver
Long-John-Silver's picture

You missed it a couple of hours ago... Silver is now $45.04

Wed, 04/20/2011 - 14:18 | 1189154 smlbizman
smlbizman's picture

it really pisses me off watching these cnbssholes telling everybody about the silver story...thankfully the sheep wont respond yet...and they wont be buying because it is so expensive...but i was much more comfortable with the private party we had going on.... 

Wed, 04/20/2011 - 10:42 | 1187997 lolmao500
lolmao500's picture

Gold will crash then? - Geithner

Wed, 04/20/2011 - 11:42 | 1188391 Problem Is
Problem Is's picture

"Gold WILL crash." Timmay Jeethner

Wed, 04/20/2011 - 10:44 | 1188006 lolmao500
lolmao500's picture

BTW, there's big rumors China will reevaluate their currency by 10% this weekend... Silver is gonna go up even more if that happens.

Wed, 04/20/2011 - 10:45 | 1188009 Tyler Durden
Tyler Durden's picture

There is almost but not quite a 0% chance of that happening.

Wed, 04/20/2011 - 10:47 | 1188020 Sudden Debt
Sudden Debt's picture

that would destroy their reserves by 330 billion $.

I think they have better things to do with their money.

 

 

Wed, 04/20/2011 - 10:50 | 1188040 lolmao500
lolmao500's picture

Destroy their reserves? Really? 10% stronger yen = 10% stronger buying power.

So care to share the maths about ``destroy 330 billion of their reserves``?

 

Wed, 04/20/2011 - 10:58 | 1188052 Sudden Debt
Sudden Debt's picture

does a 3 trillion dollar foreign currency reserve ring a bell?

Wed, 04/20/2011 - 14:47 | 1189320 dark pools of soros
dark pools of soros's picture

so they just need to keep converting their fiat reserves into PMs and commodities while raising their own currency

 

if they have so much god damn reserves who cares if their exports suffer??  just shift their economy - they call the shots now

Wed, 04/20/2011 - 11:21 | 1188225 dogbreath
dogbreath's picture

Yen??

Wed, 04/20/2011 - 18:49 | 1190329 hidingfromhelis
hidingfromhelis's picture

All (Asian) fiat currencies look the same to them, I guess.

Wed, 04/20/2011 - 11:45 | 1188404 Attitude_Check
Attitude_Check's picture

The loss in FX reserves will be offset in increase in purchasing power of the Yuan.  I'm sure that the total amount of Yuan is WAAAAY more than $3.3T!

Wed, 04/20/2011 - 10:48 | 1188031 SheepDog-One
SheepDog-One's picture

Simply not gonna happen.

Wed, 04/20/2011 - 11:07 | 1188144 Head for the Hills
Head for the Hills's picture

Makes sense after the Walmart price announcement.  A company

that ships almost all of their goods from China should have a clue.

Wed, 04/20/2011 - 13:46 | 1189005 Temporalist
Temporalist's picture

If China did anything it wouldn't be a 10% leap it would be a slow ramp up of .25% at a time maybe .50%.  They'd want to watch the reaction first before they jump of the divingboard with no way back.  That isn't even figuring the trade reasons they wouldn't want to do it.  But I think it will happen naturally anyway as they are the bookie to the U.S.

Wed, 04/20/2011 - 10:45 | 1188010 Dangertime
Dangertime's picture

There are plenty of dips here buying.

Wed, 04/20/2011 - 10:59 | 1188103 Re-Discovery
Re-Discovery's picture

I've noticed some hostility between the fiats and the reals lately.  C'mon guys, we can all get along.  I mean you're up 1.5% today so good for you (not quite 2.7% in Sprott's silver, but you're doin' fine buddy.)  Lets not let this degenerate into performance envy.  You guys stay in your end of the pool and we will in ours.  We'll let you in later if the water gets too deep over there. . .I promise.

Wed, 04/20/2011 - 16:13 | 1189757 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

water isn't the problem for real money advocates.  it's the fiat peeps that will need the water to put out the flaming fiat fires.

gold and silver are what they are and that is a fact that will not change.

the paper is worth less so that means it's worthless.

i suggest you make a paper fiat boat and float over to the real side before you get severely burned.

jus sayin....

Wed, 04/20/2011 - 10:59 | 1188106 Long-John-Silver
Long-John-Silver's picture

Sorry your butt hurt about not getting on the free money train.

Wed, 04/20/2011 - 11:14 | 1188189 Long-John-Silver
Long-John-Silver's picture

$45.04 Silver Bitch

Wed, 04/20/2011 - 10:43 | 1188011 Sudden Debt
Sudden Debt's picture

To explain, we must first address mine supply. In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold.3 The world also produced an additional 215 million ounces of silver and 53 million ounces of gold from recycled scrap.4 Adding both together brings us 951 million ounces of silver and 139 million ounces of gold supply, for a ratio of nine ounces of silver to one ounce of gold.

Gold supply is way bigger thant silver stocks and gold still risks to be hit by the D wave by the end of july.

 

Wed, 04/20/2011 - 10:44 | 1188015 faithfulwatchman
faithfulwatchman's picture

Looks like this IS the dip according to this article! Buy now, the Fiat currency is going bye-bye...so BUY, BUY!

 

JPM GO BOOM BOOM!

Wed, 04/20/2011 - 10:53 | 1188066 Re-Discovery
Re-Discovery's picture

Does a 1% up move at the opening now qualify as a dip?

In a world where I deposit money with a bank and get less back a week later, I think it might.

Wed, 04/20/2011 - 12:28 | 1188575 mick_richfield
mick_richfield's picture

Well ... fluctuations.

 

 

Wed, 04/20/2011 - 10:46 | 1188017 Cognitive Dissonance
Cognitive Dissonance's picture

What is the 'natural' Silver to Gold ratio found in Mother Earth? I've always thought it was in the 15 to 20 range. Anyone know?

Wed, 04/20/2011 - 10:49 | 1188027 Sudden Debt
Sudden Debt's picture

Just go to you nearest graveyard with a showel and a metal detector and dig some holes.

I think you'll strike more gold than silver :)

 

 

Wed, 04/20/2011 - 12:15 | 1188524 Hook Line and S...
Hook Line and Sphincter's picture

And to think that we'll actually see that day. Shovels, graveyards. Some of us will actually be the ones being dug up!

Wed, 04/20/2011 - 10:51 | 1188033 Snidley Whipsnae
Snidley Whipsnae's picture

In 1792 the US set the ratio at 15:1 according to this Wiki link.

http://en.wikipedia.org/wiki/Silver_as_an_investment

Wed, 04/20/2011 - 10:52 | 1188035 silvertrain
silvertrain's picture

Many experts claim from 12-16 to 1...So your right on it...

Wed, 04/20/2011 - 10:55 | 1188062 savagegoose
savagegoose's picture

artilce sstated 10 to 1 silver to gold  in ground

Wed, 04/20/2011 - 11:02 | 1188111 Flakmeister
Flakmeister's picture

@CD

  16:1 is the generally accepted value, production ratio is about 9:1

Wed, 04/20/2011 - 12:57 | 1188755 JLee2027
JLee2027's picture

That was before modern industrial demand. The world has changed. The new ratio will be new, and not the historical one.

 

Wed, 04/20/2011 - 17:22 | 1190028 Flakmeister
Flakmeister's picture

  The crustal ratio is not affected by industrial demand....

Wed, 04/20/2011 - 11:32 | 1188233 Stormdancer
Stormdancer's picture

In 2010 there were 22,889.6 tonnes of silver dug up and refined.  2652 tonnes of gold.  That's running about 8.6 to one.

In 2009 it was about 9.5 to one (going from memory on that one).

 

I've often read the in ground ratio is 12 -17...but I've never seen the actual ratio mined rise that high.

 

EDIT:  I was wrong.  The mined ratio for 2009 was also 8.6.  In 2009 22,342.1 tonnes of silver were produced, compared to 2572 for gold.

Musta been 2008 that was 9.5 (don't quote me :)

Wed, 04/20/2011 - 11:20 | 1188239 cowdiddly
cowdiddly's picture

I Think its is about 10:1 but Could be as low a nine or as high as 16. Ray Charles could see this one coming.

Wed, 04/20/2011 - 12:29 | 1188588 mick_richfield
mick_richfield's picture

In the entire Earth, the ratio is close to parity.  But in the crust of the Earth that we can reasonably mine, it is somewhere between 12 and 15 to 1 -- very close to the recent standard.  ( "Recent" meaning "since the discovery of the New World."  ( I am older than I look. ) )

Wed, 04/20/2011 - 15:15 | 1189443 Al Gorerhythm
Al Gorerhythm's picture

MAthman calculates 1:100. Shit's lying everywhere.

Wed, 04/20/2011 - 10:46 | 1188023 Aengrod
Aengrod's picture

Silver bitchez!

Wed, 04/20/2011 - 10:51 | 1188034 mr.glitch
mr.glitch's picture

We aren't even through the first scene of Act I yet...Good luck.

Wed, 04/20/2011 - 10:51 | 1188049 SheepDog-One
SheepDog-One's picture

Problem is, this play goes right from the first scene to the fat lady singing.

Wed, 04/20/2011 - 10:54 | 1188061 Cognitive Dissonance
Cognitive Dissonance's picture

Better get more popcorn. I sure as hell hope there's an intermission because I gotta go......bad.

Wed, 04/20/2011 - 11:10 | 1188172 Former Sheeple
Former Sheeple's picture

CD,

I read 16:1 repeatedly, but this seems to indicate its more like 8.6 to 1

"In 2010, the world mined approximately 736 million ounces of silver and 85 million ounces of gold."

Wed, 04/20/2011 - 11:29 | 1188282 Cognitive Dissonance
Cognitive Dissonance's picture

Someone above just stated that while the in ground ratio is around 16 to 1, in real world production it works out to be 9 to 1. That may account for the different numbers.

Wed, 04/20/2011 - 12:23 | 1188550 bunnytoujours
bunnytoujours's picture

Consider also silver is demined, still just tossed in the garbage not recycled. We will see poeple mining the dumps soon.

Wed, 04/20/2011 - 10:49 | 1188036 SheepDog-One
SheepDog-One's picture

Great point in the article, what everyone fails to see is the dollar has ALREADY been replaced as world reserve currency! Absolutely correct IMO.

Wed, 04/20/2011 - 11:14 | 1188206 gordengeko
gordengeko's picture

Well I guess as long as they can make the dollar 2nd to the NWO currency, so I can cash in AGQ for the second most valuable shit paper on this spinning rock.

Wed, 04/20/2011 - 16:24 | 1189809 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

spot on sheepdog.  i've been saying for years now the USD is puke and the NWO has been here for some time.

yet i still hear that there is going to be a new world order.

maybe so, the new world order of the hard money advocates!

maybe the new world order of the revolting masses across the globe!

maybe the new world order of arrests and convictions and subsequent hangings of financial terrorists.

we'll see soon enough...

it'd be kind of cool to see a new order replace the previous new order so i bet we need to coin the phrase :

newer world order!

Wed, 04/20/2011 - 10:52 | 1188038 Sudden Debt
Sudden Debt's picture

However, if we convert those ounces to dollars at current prices, we’re left with $15 billion worth of silver available for investment versus $186 billion worth of gold, or a one-to-13 ratio of silver to gold!

 

Silver at 26000$ per ounce

Gold at 2000$ per ounce

 

I like my math more :)

Wed, 04/20/2011 - 10:57 | 1188088 Magnix
Magnix's picture

You mean silver = $260.00 per ounce or $2,600 per ounce? Is this a joke?

Wed, 04/20/2011 - 11:04 | 1188137 Long-John-Silver
Long-John-Silver's picture

$26,000 per ounce Silver for a little while before it goes to infinity.

Wed, 04/20/2011 - 10:59 | 1188090 Cash_is_Trash
Cash_is_Trash's picture

From Lord of War:

I prefer my way better

Wed, 04/20/2011 - 11:00 | 1188107 Sudden Debt
Sudden Debt's picture

Cage was born to make that movie :)

They should show movies like that on career day at school.

 

Wed, 04/20/2011 - 17:26 | 1190042 WaterWings
WaterWings's picture

Yeah, get kids interested in "Philanthropy" at an early age. Or maybe at the Amnesty Intl booth if you have a good heart.

Wed, 04/20/2011 - 19:08 | 1190379 Charlie_Day
Charlie_Day's picture

The book is farrrr better. Admittedly a lot of numbers and what not, but Bout had a platinum set of balls on him.

Wed, 04/20/2011 - 16:40 | 1189859 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

agreed.  your math works for me too!

Wed, 04/20/2011 - 10:50 | 1188041 Just Observing
Just Observing's picture

Steve LIESman on CNBC this morning was talking on the possible downgrade of US debt by S&P, saying "the market will determine the true rating" while at the same time gold price was rolling on the screen above him at 1500+.

I thought.....YEP.....the market HAS determined what is creditworthy and not, and guess what?  Gold is winning.

 

Wed, 04/20/2011 - 11:21 | 1188242 NotApplicable
NotApplicable's picture

Once again, he is merely setting the stage for "raise the debt ceiling, or else!"

Nuthin' but a water boy.

Wed, 04/20/2011 - 14:30 | 1189234 akak
akak's picture

Nuthin' but a water boy.

Boy, that sure is some low-quality H2O!

Wed, 04/20/2011 - 10:50 | 1188044 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Owning silver bullion will be the greatest "trade" in the history of finance.  Don't wait for it, buy silver.

http://lhmarketwatch.blogspot.com/

Wed, 04/20/2011 - 10:50 | 1188045 I am more equal...
I am more equal than others's picture

My name ist Long John Silver....the pirate life for me

Wed, 04/20/2011 - 11:08 | 1188145 Long-John-Silver
Long-John-Silver's picture

I have Gold too!

Wed, 04/20/2011 - 10:54 | 1188053 lieutenantjohnchard
lieutenantjohnchard's picture

it's nice to be an early adapter to a new trend.

we few, we happy few, we band of silver holders.

Wed, 04/20/2011 - 10:55 | 1188064 Flakmeister
Flakmeister's picture

Gotta laugh.... I posted almost an identical analysis as the above in 2 paragraphs about a month ago....

Still sitting on my Jan 2012 SLV 25 strike calls and selling theta against them....

 

 

Wed, 04/20/2011 - 10:53 | 1188065 tallen
tallen's picture

JUST HIT $45 :D :D

Wed, 04/20/2011 - 10:53 | 1188067 dark pools of soros
dark pools of soros's picture

silver to $200 in two years??

Wed, 04/20/2011 - 11:00 | 1188094 Sudden Debt
Sudden Debt's picture

Looks like it.

My silver supply will be my retirement fund :)

 

Wed, 04/20/2011 - 12:35 | 1188618 mick_richfield
mick_richfield's picture

If Au/Ag hits 5, I personally think you should sell your Argentum for Aurum.

As much as I hate to say that.

 

Wed, 04/20/2011 - 11:00 | 1188114 Gyro Gearloose
Gyro Gearloose's picture

"Expect The Gold To Silver Ratio To Hit Single Digits" 

Thats a "Change You Can Beleive In"

Wed, 04/20/2011 - 16:27 | 1189828 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

yaaah!  a much needed "change" from that last obummera change we'd rather return to the maker.

Wed, 04/20/2011 - 11:03 | 1188122 Dr. Gonzo
Dr. Gonzo's picture

Erin Burnette, Becky Quick, Steve Leisman, Carl Quintienia, Jim Cramer and the other schumcks will wait til silver hits $150 to "find out" all the phenominal properties of silver and how the world can't fuction without it and how they had "no idea" it was this important to humanity and "no idea" it could be such a great investment. They'll act like a child seeing a magic trick for the first time when they have experts come on their shows to explain to them about the meaning of why silver is so valuable. Thank god we have people like this guiding us with out money. After all why mention silver when it was at $5 when you could wait til all the insiders get in and then start talking about it when it realizes it's fair value at $150. 

Wed, 04/20/2011 - 16:35 | 1189850 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

good comment!  "like a child seeing a magic trick"!

i had to laugh, then i realized how it will probably actually take place just as you said.  then i laughed some more.

i quote bugs bunny - "what a maroon".

Wed, 04/20/2011 - 11:06 | 1188146 tekhneek
tekhneek's picture

It is going to single digits, but then it's going to kill gold and revert the mean upside down.

16 ounces of gold for 1 ounce of silver.

It's all in the fundamentals, bitches.

Wed, 04/20/2011 - 11:16 | 1188199 pitz
pitz's picture

must be motherfucking RELIGION to you (ie: the SUKI (tm) RELIGION).

Wed, 04/20/2011 - 12:13 | 1188517 slewie the pi-rat
slewie the pi-rat's picture

lol!  for t_k!!!  if those are the funda-mentals, bring on the BiCHeZ!!!

"revert the mean"-----we have a woman of vision and poise, here, folks!  this is wonderful, and she's not being too strict, today, either...

Wed, 04/20/2011 - 11:19 | 1188205 oddjob
oddjob's picture

Aurcana sued by Sprott for backing out of loan

2011-04-19 13:32 PT - Street Wire

 

by Mike Caswell

Aurcana Corp. is facing a lawsuit from one of its shareholders, Sprott Asset Management LP, which claims that Aurcana backed out of an agreement to borrow $25-million (U.S.) from Sprott. After abandoning the deal, Aurcana failed to pay a termination fee equal to 1.56 million ounces of silver, the suit states.

The allegations are contained in a notice of civil claim that Sprott filed on April 15, 2011, in the Supreme Court of British Columbia. According to the suit, Aurcana was seeking financing in September, 2010, for work on its Schafter property in Texas. Sprott says that it offered to lend the company $25-million (U.S.) and to invest $10-million (Canadian) in a private placement. Aurcana accepted the offer, but then after closing the private placement the company refused to complete the loan portion of the deal, Sprott claims.

According to the suit, the debt portion of the deal included several benefits for Sprott that it ultimately did not receive. Aurcana would have repaid the loan with quarterly instalments equal to 1.66 million ounces of silver. Other benefits would have included a $1.25-million (U.S.) bonus, payable in shares, and warrants to buy 12 million shares at 50 U.S. cents. The agreement also had a termination clause, in which Aurcana would pay the cash equivalent of 1.56 million ounces of silver to Sprott if it did not borrow the money, the suit states.

Sprott further complains that Aurcana used its good name to complete the private placement (which raised $60-million) before abandoning the debt financings. As Sprott sees it, its reputation is such that its mere participation in a placement gives a company increased credibility with mining investors. The success of the private placement resulted from the announcement of Sprott's participation, the suit claims. By not following through with the debt financing, Aurcana breached a good faith obligation to Sprott.

The suit seeks payment of the termination fee, calculated at the current price of silver. Alternatively, it seeks damages for breach of contract and misrepresentation, among other things. Sprott is represented by Brent Maclean of Davis LLP.

Aurcana has not responded to the lawsuit in court, but it did issue a news release on Monday in which it denied any wrongdoing and said it acted entirely in good faith. According to the company, the initial terms of the agreement (which it calls a "non-binding term sheet") proved too onerous. It would have ended up paying $50-million (U.S.) to borrow $25-million (U.S.). Aurcana says it did try to renegotiate the agreement, with no success. Its only financial obligation to Sprott, according to the release, was to pay legal fees.

Aurcana closed at 72 cents on Monday, down 10 cents.

Wed, 04/20/2011 - 11:36 | 1188336 dogbreath
dogbreath's picture

Sprott is acting like a bullion bank.  A 1.56 million ounce termination clause and you expected Aurcana to pay the equivilent of 75 million in cash to borrow 25 million  and or break the contract and pay nearly the same.  It's called a setup for failure.

Wed, 04/20/2011 - 13:52 | 1189042 slewie the pi-rat
slewie the pi-rat's picture

see what the courts say.  not sure abt US law, much less canadian, but this is a complex deal.  they took Sprott's $C $10,000,000.00!  and he basically had the loan going out w/ Venture Capital trimmings, which is not outa line.  if they try to fuk him and don't take the loan, there is a huge penalty.  what's not to like?  they freaking agreed to this to get the $10 mil.  Ten Million Dollars!  if they don't want the loan, too, well, fine!  here's what happens, right here.

Wed, 04/20/2011 - 17:35 | 1190063 dogbreath
dogbreath's picture

.

Wed, 04/20/2011 - 17:22 | 1190038 ConfederateH
ConfederateH's picture

Aurcana signed the deal when silver was $18.  After the explosion they decided that they wanted to keep the $20-$x profits all for themselves.  Welcome to the mining industry nubes.

Wed, 04/20/2011 - 11:18 | 1188212 Dr. Gonzo
Dr. Gonzo's picture

Silver might be almost as important as oil to our military....and crude oil is a hell of a lot cheaper and easier to source than silver. Our war strategy is now to launch large multi million dollar missiles from afar packed with sophisticated electronics larded in silver and blow it all to smithereens. $45 is like giving it away for free still... for the work you have to do to get it. silver isn't tin or zinc. It's a precious metal and needs to be treated with respect. So they better let the price rise or the hoople heads are going to continue to buy it all up and put in their hidey holes and they'll never get it back from them. They don't want to tell the hoople heads how valuable it is. The hoople heads think it is but they don't know for sure so the best strategy for the Pig Men is not to say anything and just keep letting the price rise till they price the hooples out of it. The hooples are getting too rich on physical silver and they can't stand it. I love it. 

Wed, 04/20/2011 - 11:17 | 1188221 cbaba
cbaba's picture

I am sure that the Gold and Silver are the only money in this crazy fiat paper world,

but i am not sure about the 1 /9 silver /Gold ratio.

There must some other explanations other than the mined totals and current mine capacity estimates.

May be The gold is easy to store in vaults, takes less space, accepted as a national reserve in Central bank vaults.

Historical ratios are about average 1/40 to 1/50 i would say.

Here is the data( source is Kitco> average yearly gold price divided by average yearly silver price) of Gold to Silver Ratio average for each 5 year between 1920 and 1945 and each year from 1970 to 1994, it may give a clue to eveyone:

1920 31.57

1925 29.83

1930 62.58

1935 59.66

1940 97.27

1945 49.03

1950 43.4

1955 38.7

1960 38.6

1965 27.16

1970 21.9

1971 29.26

1972 29.43

1973 31.02

1974 36.27

1975 39.42

1976 28.71

1977 31.38

1978 32.58

1979 14.07

1980 37.37

1981 54.56

1982 35.49

1983 46.52

1984 53.85

1985 53.88

1986 68.54

1987 65.75

1988 71.54

1989 68.81

1990 94.27

1991 92.63

1993 72.42

1994 80.52

The lowest ratio is 14 and highest is 81 

 

Note that up until 1971 dollar was backed by gold.

You can see the jump in 1970's ratio drops to 20's 30's but not lower.

I would say Gold prices will never be 9 times the silver price..

 

 

 

 

 

Wed, 04/20/2011 - 12:03 | 1188473 tarsubil
tarsubil's picture

Wasn't the US government backed ratio 20 to 1 then 30 to 1 during FDR's time. I seem to remember a funny story about confiscation of gold and the changing of the ratio immediately after. Maybe I'm wrong.

Wed, 04/20/2011 - 12:19 | 1188535 tmosley
tmosley's picture

Gold has not been consumed, where silver has.  There is less silver on the surface of the Earth than there is gold right now.

Silver will hit parity with gold in the industrial panic that is coming, following the collapse of the price suppression scheme.  This has happened before, in the dim beginnings of ancient history.  It was prevented from happening in the time between then and now by the virtue of silver's sole use as money.  Industrial uses have changed that dynamic, and will make silver more valuable in the future compared to gold.

Wed, 04/20/2011 - 14:03 | 1189078 plata pura
plata pura's picture

Yep once mortals find the benefit of silver highest and best use, the value will surpass the likes of rhodium. Science is indeed catching a clue. Profiteers and capitalists using capitalism will exchange the precious for silly shit in the coming decade until realization that peak precious has come and gone.

Wed, 04/20/2011 - 12:39 | 1188636 Camtender
Camtender's picture

"The lowest ratio is 14 and highest is 81" ????

 

 

1990 94.27

1991 92.63

Wed, 04/20/2011 - 11:25 | 1188254 Problem Is
Problem Is's picture

Eric Sprott for President 2012
Oh wait, Sprott was born in Canada, so he is not natural born...

Section I, Article 2
Oh wait, that does not matter any more as of 2008...

Sprott for President...

Wed, 04/20/2011 - 17:23 | 1190040 Flakmeister
Flakmeister's picture

 Good god....be a silver bug and make a profit.. but the birther thing is so old and now discredited that by bringing it up, you only reveal your narrow minded ignorance...

Wed, 04/20/2011 - 11:38 | 1188344 Geoff-UK
Geoff-UK's picture

Silver is industrial to a level unknown throughout human history.  And it is not monetized in a way that central banks treat gold.

 

Gold and silver are independent from each other--even if both go up as the USD turns into shit.  Ratio discussion is silly.

Wed, 04/20/2011 - 17:02 | 1189946 bruinjoe93
bruinjoe93's picture

Silly until the Arab and Chinese governments starts hoarding it.  I bet you the Chinese government is hoarding silver right now with their fiat US dollars.  Who wouldn't?

Wed, 04/20/2011 - 12:07 | 1188487 ivars
ivars's picture

I had correctly predicted increase in silver price growth speed here, in this March 13th graph.

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&st=0&sk=t&sd=a&sta...

 

But I made that prediction correctly based consequent correction to 25-28 USD. Have i also predicted correction correctly ( that its coming soon) , and the level of correction price ( its 45 USD in the graph, could be of course even >50 USD in the peak as well as prices move very fast in superexponential growth region)?

We shall know in less than a 2 weeks.

The interesting thing is , stocks has to drop at the same time, as USD value will be somewhat temporarily restored vs. silver and also a bit vs. gold, but oil price should not change dramatically.

Is Iran going to do something stupid? I have no idea what could cause all these events simultaneously. Or some too big to fail bank may fail?

Wed, 04/20/2011 - 12:09 | 1188507 New American Re...
New American Revolution's picture

Never say 'Never', and never say 'Always'.   The only absolutes are Tyrants can't live without fractel banking, and preferrably their own.

Wed, 04/20/2011 - 12:16 | 1188534 Spigot
Spigot's picture

In the past silver at one time traded 9 or 10 to gold in Europe (Middle Ages) since silver was more difficult to refine than gold.

Once the Industrial and Electrical revolutions occured, copper, lead, zinc mining produced huge quanities of silver that depressed the market value and cause governmental authorities to consider it worthless.

After the dishoarding of silver from the CBs vaults, which also depressed prices (now that contribution to supply has been exhausted) We get to see an entirely different dynamic, which will include every hedge fund, etc pile in then sell it higher to stupider money, who sells it higher to the stupidest money for hundreds of $$$ an ounce.

Come to papa!

Wed, 04/20/2011 - 12:54 | 1188717 monopoly
monopoly's picture

I like what I own.

Wed, 04/20/2011 - 13:04 | 1188802 JLee2027
JLee2027's picture

Ah, well Crimex has shown up.

Massive attack underway. BTFD !

Wed, 04/20/2011 - 13:39 | 1188971 Joe Martins Ghost
Joe Martins Ghost's picture

As expected blythe and the monkey boys drove both PMs down into the CRIMEX close. Ag bounced of 45.50 and Au off 1497. Same game different day.

Wed, 04/20/2011 - 13:42 | 1188989 plata pura
plata pura's picture

A GSR of 29.98 be intolerable.

Wed, 04/20/2011 - 15:47 | 1189606 akak
akak's picture

Unsustainable US federal debt and fiat dollar backed by it be more intolerable.

Wed, 04/20/2011 - 13:45 | 1188991 Transformer
Transformer's picture

Adding both together brings us 951 million ounces of silver and 139 million ounces of gold supply, for a ratio of nine ounces of silver to one ounce of gold.

Did anyone else notice that 951/139 = 6.8, not 9.

Wed, 04/20/2011 - 15:24 | 1189490 mick_richfield
mick_richfield's picture

He was rounding.

Wed, 04/20/2011 - 16:14 | 1189766 FrankDrakman
FrankDrakman's picture

It was a pun.

Wed, 04/20/2011 - 13:43 | 1188995 Joe Martins Ghost
Joe Martins Ghost's picture

Let them play with the spot price.  As long as I see that ratio number getting smaller I'm happy.  Ithink the tightness in the ratio might be proportonal to the amount of Imodium Blythe is taking to keep her sphincter shut!

Wed, 04/20/2011 - 13:45 | 1189003 plata pura
plata pura's picture

Damn it be a hell of a lot easier to compute accurate GSR projections than be to answer the  math questions all up in here to post quatrains; boy howdy.

Wed, 04/20/2011 - 14:06 | 1189095 slewie the pi-rat
slewie the pi-rat's picture

hey p_p!  great quatrain.  worth captcha-ing.

Wed, 04/20/2011 - 14:09 | 1189105 plata pura
plata pura's picture

One more think; the good mr sprott factors in not the availability of stored ancient sunlight to enable man the ease of extracting the precious from earths crust. Peak oil, coal and ng will hinder extraction rates over the coming years. It's all figured in.

Wed, 04/20/2011 - 15:00 | 1189375 MillerlovesSilver
MillerlovesSilver's picture

"...That's when silver is brought into play. It's still relatively cheap (also on a nominal basis) which makes it very attractive for investors who are new to this game. The mob will pour into silver and with the market being as tight as it is (already today when nobody really gives a damn about silver as an investment), silver will rise to levels which nobody really dares to think of today."  - source: http://silver-info.com/goldprice-behavior.htm (2011 - 04 - 20; 12:45 pm) ... Yes!! That's how it goes!! ;-)

Wed, 04/20/2011 - 15:34 | 1189538 Yohimbo
Yohimbo's picture

Thats to much reading for me since Im rich now. I suppose I should trade a piece of precious for some paper and hire me an economics major grad for $7.25 an hour in paper to do my reading and wash my drawers.

Wed, 04/20/2011 - 16:31 | 1189838 UP4Liberty
UP4Liberty's picture

Gold IS MONEY.

Wed, 04/20/2011 - 16:35 | 1189846 akak
akak's picture

"Because gold is honest money, it is disliked by dishonest men."

 

- Ron Paul, The Case for Gold

Wed, 04/20/2011 - 17:41 | 1190083 tsx500
tsx500's picture

so, is there a way to put this 'trade' on w/ etf's ?   (long Ag/short Au)     ... i'm not aware of any short/inverse Au etf's out there .....  

Wed, 04/20/2011 - 19:20 | 1190410 Charlie_Day
Charlie_Day's picture

Seriously? Remember this is paper money but if you really wanted to, I guess long SLV, short GLD, bout a 3 to 1 ratio. Buying ~132 vs selling ~146. Off by about fifteen bones, but I REALLY wouldn't put this trade on. For a simple paper trade just go long AGQ on the next dip in a few days and roll the dice. Edit: If you wanna buy both you can go Long AGQ and Long GLL, bout 1:13 ratio. Once again though, you're gonna get ETF decay if you ONLY  go long, especially in the leveraged ones.

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