Monday, September 21, 2009

Gold and silver prices

In order to determine relative value of gold and silver we can put both commodities in ratio . It was the lowest in the last century at 14, compared to current levels around 70. This would suggest that gold is currently overvalued.

Since 1980, the ratio of the price of gold silver ranged between 30 and 100 and average was 65. Last time it reached 100 in 1991 after Iraq's invasion in Kuwait which raised concerns about rising oil prices that could lead to rising inflation. Gold will serve as financial security.

The current massive pumping of money into the economy by central banks and government spending could lead to similar concerns about the price level. In next few years this could support the prices of both precious metals.

In the short term both gold and silver prices may drop slightly, as investors move to riskier assets such as shares, due to expected economic growth and industrial production.

If indeed there is a revival of the economy, the price of silver will not be so much affected because it is used in industries such as electrical engineering, aerospace and defense industries. . The value of gold will suffer more than silver.

It is expected that industrial demand for silver will constitute about 65 percent of the total world supply, estimated at 895 tons. While industrial and medical uses of gold is estimated at 11 percent of total supply (3880 tons).

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For easy investment into both precious metal commodities there are already several exchange traded funds.

Gold ETF
streetTRACKS Gold Shares (GLD)
PowerShares DB Gold (DGL)
Market Vectors Gold Miners ETF (GDX)
iShares COMEX Gold Trust (IAU)

Silver ETF
PowerShares DB Silver (DBS)
iShares Silver Trust (SLV)

For all above mentioned ETF you can get free analysis here. You simply type ticker and that's it. Or you can follow video trading analysis for gold.


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