Traders that follow the gold to silver ratio believe that silver will far outperform gold for the rest of the year.
Industrial demand for the white metal is starting to build after a four year slowdown caused by the recession. At the same time, traders who bought gold over the same period are starting to take profits, and are looking to silver as the next big play.
“Gold is almost twice as much as it was at the peak of the last bull market in 1981, however silver is only slightly more than half of it’s 1981 price,” Kevin Sandrock, a private investor and registered adviser said on Friday to Truthquake News. “At that time, the ratio between the two metals was trading at sixteen to one, it is now fifty five to one”.
Mr. Sandrock went on to say that he would be cashing in most of his gold holdings and converting them to silver mining stocks, high grade silver coins, and buying silver futures contracts on the New York Mercantile Exchange.
One strategy that hedge funds are employing, is an arbitrage where they buy silver and sell short gold simultaneously. Selling short is a “bet” on lower prices, traders borrow against gold purchases and profit if the yellow metal falls in price. Of course if gold does rise more than silver, the trade will lose money.
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It is expected that if and when the recession ends and industrial demand for silver increases, the price will skyrocket. Gold is not expected to rise to the same extent, because speculators have already pushed the price to where mines have been reopened and supply is starting to come back into the market.
Another factor is that traders in India, traditionally big speculators in silver, are starting to make record purchases. Now that Mumbai is a major player in world markets, this could be the greatest factor in silver prices gaining on the price of all other precious metals.
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