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 Citigroup bearish on silver due to the S/G ratio
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Ardent Listener
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Posted - 03/17/2011 :  19:14:34  Show Profile Send Ardent Listener a Private Message
Silver Trouncing Gold Signals Setback: Chart of the Day

By David Wilson - Mar 17, 2011 1:54 PM ET

Business ExchangeBuzz up!DiggPrint Email .(Corrects time reference in third paragraph.)

Silver has become so expensive by comparison with gold that it’s poised to fall, according to Citigroup Inc.’s global commodities team.

The CHART OF THE DAY compares the price of the precious metals for immediate delivery since 1980, when the billionaire Hunt brothers’ effort to corner the silver market collapsed, and displays the gold-silver ratio.

As the bottom panel shows, 41.6 ounces of silver cost as much as one ounce of gold at the end of February. The ratio bottomed on March 11 at 39.5, the lowest since October 1983.

Silver appears vulnerable to losses even though investment and industrial demand have surged amid relatively stable supply, the team wrote yesterday in a report. The metal is increasingly being used in batteries, electronics, identification tags, medical equipment, plasma display screens, solar panels, textiles and water purification, they wrote.

“Much of this has been priced into the market,” Citigroup said, adding that “positive fundamentals” aren’t sufficient to counter the threat of losses.

Even so, silver is likely to hold above its recent lows through the rest of the first half, in the bank’s view. This year’s low in the spot market was $26.40 an ounce, reached on Jan. 28.

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

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