Gold silver ratio seems out of line?

Ever since the period of bi-metallism, traders have looked at the gold silver ratio as a measure of value. Silver has become known as "poor man's gold". So if the ratio get very high, the price of gold will be high relative silver and there should be an increase in silver demand. Unfortunately, the relationship has not been stable so it is hard to say what is the level of extremes.

From Investopedia, Here's a thumbnail overview of that history:

• 2007 – For the year, the gold-silver ratio averaged 51.
• 1991 – When silver hit its lows, the ratio peaked at 100.
• 1980 – At the time of the last great surge in gold and silver, the ratio stood at 17.
• End of 19^th Century – The nearly universal, fixed ratio of 15 came to a close with the end of the bi-metallism era.
• Roman Empire – The ratio was set at 12.
• 323 B.C. – The ratio stood at 12.5 upon the death of Alexander the Great.

Noteworthy is the fact that the ratio has declined significantly with gold somewhat rangebound and the price of silver moving higher. There are some key reasons for the current silver run.

There is strong backwardation in the silver market like copper. Gold is in contango. There is a supply shortage especially with China now being a net importer, and high short interest that some think will be squeezed in the current rally.

There is speculation that the SLV ETF does not have enough silver to affect a delivery to China. Last year China imported 3,500 tonnes of silver while it was an exporter of 3,000 tonnes just five years ago. Imports surged 400 percent in one year. The current story is that Asian investors have been buying the SLV ETF in order to take delivery of silver. If an investor acquires 50,000 shares, these can be presented to a broker dealer in the ETF for physical silver. A squeeze would occur if the silver was not readily available.

If the supply and demand story is to be believed then the gold silver ratio could fall even more in the next few weeks. There is no cheapness in the ratio.