Currently one of the actual problems for investors comes to be the matter of investment safety, herewith giving an opportunity to gain profits. Many traders and investors refrain themselves from active trading since they worry about debt problems in Eurozone, the possibility of bank defaults, instability of dollar and euro.
However, even in such a situation there exist some assets in which professional investors and speculators keep on investing money and getting great profits. Gold and silver are primarily among such actives. The advantage of these assets is that they can be used both for long-term investments and for active speculative trading. It was due to buying a great amount of white metal that George Soros and Warren Buffett at one time earned milliards of dollars.
Tracking the price of XAU against XAG which shows how many ounces of silver can be bought by one ounce of gold plays a significant role in the matter of profitability of investment in them. In the historical retrospective the acceptable level was considered to be the relation of 16 ounces of silver for 1ounce of gold. According to many analytics, today the silver with 53-54 ounces for 1 ounce of gold is unappreciated with respect to gold and in the nearest future it will become a more attractive instrument for investors.
The XAUXAG relation remained between 30 and 40 during 1970s, but it broke down from that channel in the second half of 1979 as a result of speculation of physical silver and silver futures by well-known Hunt brothers. The relation dropped to 16 on January 1980, but afterwards instantly returned to 40, when the stock exchanges considerably increased pledges for silver futures, which created problems for Hunts who had bought a large amount of contacts.
In the second half of 1980s the relation continued increasing and reached its maximum on the level of 100 at the beginning of 1990s simultaneously with powerful bank crisis, almost leading to the collapse of the largest American banks. Upon restoring the banks during 90s the relation between gold and silver was dropping. From the end of 90s till the present time the current relation has been fluctuating from 54 to 80. It is significant to note that the maximum of the relation (80) has practically coincided with the peaks of financial crises (the beginning of 2003 and the end of 2008) and that of minimum (45) occurred in a situation with a high level of economical confidence.
In the spring of the year 2010 the relation gored the bottom of the long-term channel and quickly dropped to 30. It was substantially connected with various rumours about the silver deficit and the breakup of the scheme on the suppression of the silver price, organized by the bank of JPMorgan. An enchanting and impetuous growth of the silver price in 2010-11 finished the same way as other similar movements, i.e. the result was the abrupt decrease of the price and the relation returned to a level higher than 40. During the whole 2012 the relation was within 50-60, which can be now considered as normal. The movement beyond these limits upward will be conditioned by future worsening of the financial crisis or great problems in the sphere of banking and the movement downward by active speculation, being concentrated on the silver.
The analysis of the gold/silver relation has a very significant meaning to investors and traders primarily from two points of view.
First, the accounting of the macroeconomic situation and the technical analysis of the current relation allows to choose from these two trading instruments the one which is currently the most effective from the point of gaining profit.
Secondly, this relation is a very interesting one, an independent object of trading and investment. As a rule, the volatility of the relation is less than its components, which lets traders use higher leverage, than they can afford while trading with gold and silver separately and respectively gain more profit with less risks.
Unfortunately, in the present there are few companies that give clients an opportunity to trade with XAUXAG as an independent and separate instrument. Among such companies are Saxo Bank, IFC Markets and INFIN Markets.