The Coming Silver Shortage
Personally, I have been 100% invested in gold for over 10 years now. However, over the last month or so I have begun adding silver to my holdings for one very simple reason: Relative to gold, it is tremendously undervalued at these currently suppressed/manipulated prices! I base my opinion on the following information.

Before 1933, when our coinage was silver and gold, the price of gold was $20/ounce and silver was $1 an ounce, a 20 to 1 ratio. Twenty silver dollars was equal to one $20 gold peice. This was a historical standard that had been around for thousands of years as gold is about 20 times less abundant in the earth's surface than silver.

Today however, the ratio between the price of gold and the price of silver is about 45 to 1. Gold is trading for around $1800 an ounce, while silver is around $40 an ounce. Now, in a truly free market system, where prices are based on true supply and demand, and not central bank/gov't manipulation, that ratio would tell us that for every 45 ounces of silver that exist, there should be 1 ounce of gold.

However, according to the following chart, that is not the case. The truth is that there are only 8 ounces of investable silver for every one ounce of investable gold... an 8 to 1 ratio.

CLICK ON CHART TO ENLARGE

source: sharelynx.com

In other words there are only 8 ounces of investable silver out there for every one ounce of gold. That means that the price ratio should be 8 to 1, not 45 to 1. And since markets, no matter how manipulated in the short term, always eventually reach equilibrium, that means that with gold at $1800 an ounce, silver should be trading at around $225 per ounce. That disparity represents opportunity!

Of course, that $1800 gold price is a moving target. It is $1800 today, but tomorrow? Who knows? By the time it hits $2000, then silver should be at $250.

The bottom line is that because most of the silver that is mined today is used by industry, there's not as much "investable" silver out there as there was 100 years ago when silver was more of a monetary and less of an industrial type metal.

So what should that ratio be today? I think 8 to 1 is certainly a starting point, but if investors begin to purchase physical silver and draw down the supply, you could see that ratio fall even further because the supply of silver is miniscule. 800 million ounces of silver is only $32 billion. And $32 billion, in the big scheme of things is NOTHING. Of the thousands of mutual funds out there, the Fidelity Cash Reserves Fund alone has assets of over $118 billion!

When the public finally catches on to what is going on and the stampede into gold and silver starts, there simply won't be enough to go around!

I do know this.... based on the above, I think the 45 to 1 ratio will come way, way down, so even if the price of gold stays the same (which it won't), the price of silver needs to go up sixfold just to be where it should be. However, if/when the public finally catches on and stampedes into the precious metals market, you can throw those ratios out the window. Prices will go ballistic at that point.