Spot silver reached a 31-year high of $37.65 an ounce on Thursday morning. This represents a 9.85% gain from last week’s levels.
The metal rebounded sharply over the past week, as turmoil in Libya and concerns about Europe’s deficit crisis lured investors back to the safety of precious metals. The yield on Portugal’s benchmark ten-year bond surged ten basis points this morning to a record high of 7.74%, and the extra yield required by investors to hold ten-year Portuguese bonds instead of safe-haven German bonds widened by ten basis points to 452 basis points, after Portugal’s Prime Minister Jose Socrates tendered his resignation.
He handed in his resignation on Wednesday after plans to cut the budget were discarded by parliament. Also, Moody’s Investors Service on Thursday slashed the senior debt and deposit ratings of 30 Spanish banks by at least one notch, with 15 banks cut by two notches and five banks by three or four notches. The gold-to-silver ratio currently stands at 38 times. This is not far from the second standard deviation of 34.07 times. Assuming the ratio falls two standard deviations away from the long-term average and the price of gold remains at current levels, then silver could hypothetically rise to $42.28 an ounce. This would represent a 12% increase from the current price.