Relation between Silver & Gold: Silver often tracks the gold price due to store of value demands, although the ratio can vary. The gold/silver ratio is often analyzed by market participants. In 1792, the gold/silver ratio was fixed by law in the United States at 1:15, which meant that one troy ounce of gold would buy 15 troy ounces of silver. The average gold/silver ratio during the 20th century, however, was 1:47. The lower the ratio/ number, the more expensive silver is compared to gold. Conversely, the higher the ratio/number, the cheaper silver is compared to gold. Currently, this ratio stands at 1:53.
Price Trend :
From September 2005 onwards, the price of silver has risen fairly steeply, being initially around $7 per ounce but reaching $14, for the first time by late April 2006. The monthly average price of silver was $12.61 per ounce during April 2006, and the spot price was around $15.78 per ounce on November 6, 2007. As of March 2008, it hovered around $20 per ounce. However, the price of silver plummeted 58% in October 2008, along with other metals and commodities, due to the effects of the credit crunch. By April 2011, silver had rebounded to reach a 31-year high hitting $49.21 per ounce on April 29, 2011 due to economic concerns about inflation and uncertainty regarding bailouts in the Euro zone.
Silver, like all precious metals, may be used as a hedge against inflation, deflation or devaluation. As explained by a U.S based portfolio manager in September 2010:
“The currencies of all the major countries, including ours, are under severe pressure because of massive government deficits. The more money that is pumped into these economies – the printing of money basically – then the less valuable the currencies become”.