Silver Has A Lot More Room To Run!

An Introduction

Markets are widely anticipating a 25-basis-points cut….[to be announced when the Federal Reserve meets on Sept.17-18th with more reductions possible] before year’s end. If the Fed follows through, it will cause bond yields to weaken further, the dollar to weaken more and commodity prices to strengthen…especially gold and silver prices…

This post is a severely edited ([ ]) and abridged (…) version of the original article by Richard Mills (aheadoftheherd.com) for the sake of clarity and brevity to provide the reader with a fast and easy read.

Undervalued Silver

Silver and gold largely move together, as both offer similar macro- and currency-hedging properties but, while gold has hit record highs this year, silver remains undervalued…With gold now above $2,500, silver prices should trend higher. Silver usually rallies after gold.

Gold-silver Ratio

One way to gauge the relative value of gold versus silver is to calculate the gold-silver ratio. Simply divide the spot gold price by the spot silver price.

According to Sprott Money, a breakout is coming because silver cannot continue to be so undervalued compared to gold. Using a median gold-silver ratio of 80:1 (80 ounces of silver to buy one ounce of gold), a gold price of $2,300 implies a silver price of $28.75. If gold reaches $2,500, as it has, maintaining that same ration means $31.25 silver… When silver breaks out later this year or next, it will receive the same rush of attention and speculator cash that gold is currently enjoying and, as such, the price target will not simply be $29 or $31. Instead, the initial goal will be $35 or higher. That’s a greater than 50% move from here and one from which you could greatly profit if you get correctly positioned before it begins…

When precious metals rallied in 2020, on the back of lockdowns, interest rates slashed to zero, QE, and general market fear, silver’s gain was double that of gold. The price ran up 43% from January to December, 2020, compared to gold’s mere 20.8% rise. Earlier in the year, as gold punched above $2,000 an ounce, a 39% gain, silver rallied to nearly $30 an ounce, a 147% increase. Meanwhile, the gold-silver ratio fell from over 100:1 to just over 64:1. It could easily happen again, especially with the Fed poised to drop rates…

Conclusion

Silver is undervalued as reflected by the current gold-silver ratio which sits at 86:1. The 20-year average is 68:1. Even though silver has outperformed gold year to date, by 28% to 23%, it still has a lot more room to run.