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The Real reasons for Silver!

This is an excerpt from Kitco

Silver is a perfect hedge, because, when things go wrong economically – when there’s a crisis – the price of silver goes bananas.
Why? Because of the silver to gold ratio.
Historically the price of gold has been around 16 times the price of silver. So, for example, based on the long-term historical average ratio, with the price of gold around $650, the price of silver should be around $40. It’s not, of course. It’s around $12.50

Today then, the silver ratio is more like 50. What explains the difference between hundreds of years of history and today? Simple – demand for silver as money. During periods of history when silver has been used as a currency, it has almost always been valued ~ 1/16th the price of gold.

When silver has been “demonetized,” supplies soar as people sell silver for gold and currency. On the other hand, during periods of monetary crisis, the price of silver tends to increase far more than the price of gold as demand for silver is once again created by monetary needs.
This influences the silver to gold ratio heavily in silver’s favor. For example, the ratio returned to its historic range (16) during World War I. It happened again in the early 1970s when Nixon abandoned the gold standard. It also happened most famously in 1979/1980 when gold briefly soared to $800 an ounce and it seemed as if America was really entering a severe money crisis.
My friend and fellow newsletter writer, Chris Weber, wrote an outstanding report on the history of the silver/gold ratio in his April newsletter. I urge you to read it (www.weberglobal.net). I admit freely that Chris’s work has influenced my thinking; it’s not the first time. I’ve known Chris since the mid-1990s. No other general investor that I know, buying regular common stocks, has made more money investing and suffered so few losses in that time. I believe Chris Weber is the single best investor in the world. He’s long silver.

Silver is the best hedge against a money crisis because its price will increase many more times than gold, as the silver-to-gold ratio reverts to its historic average. Silver will once again be worth 1/16th the price of gold. It is now worth only about 1/48th.

Assuming gold hits my target of $2,000 an ounce; gold hoarders will have gained roughly three times their money, based on today’s $650 price of gold. But if you hedge with silver, you could make a lot more... $2,000 gold divided by the historic silver ratio of 16 sees the price of silver at $125 per ounce – roughly ten times the current price.

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