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Q:The silver price until recently lagged the gold price this year, pushing the gold to silver ratio above 83 to 1. Now it has backed down to 73 to 1. What is your short term view on silver vs gold?

A: Silver historically lags gold entering into a new cycle but typically catches up with a bang. Since gold bottomed late last year, and had a nice bounce to start the year, it does look like a new cycle for the precious metals is now under way, so it is no surprise silver lagged gold. If you recall the last cycle, gold started rising off bottom in March 2001 but silver did not start to move until November 2003 when gold was already significantly higher, but then silver almost doubled in six months. From a fundamental point of view, Wall Street is still focused on the risk of falling electronic demand due to the global economic slowdown, whereas Main Street is starting to recognize that silver production topped last year and is forecast to decline for several years due to lack of new discoveries and mine development. So silver was bound to play catch up to gold and it did just that over the past two weeks. However, these gold and silver markets are now overheated and looking a bit toppy, so my short term view is that gold and silver should correct soon, after which time should follow an attractive buying opportunity in advance of the next up-leg in the precious metal cycle.

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