Silver Prices Forecasted to Soar Based on This Indicator
Quantitative easing has weighed heavily on silver prices, but the grey metal is poised for massive gains. This miraculous indicator has an unbelievable record of predicting a sudden rise in silver prices. Investors who ignore the potential offered by this indicator could miss out on 422% in gains, similar to 2011 when silver prices hit $50.
I should clarify; you won’t get rich overnight. Markets are a sea of raging volatility these days, with several macroeconomic stories still playing out across the world. The idea of suddenly doubling or tripling your money is a red herring.
Be wary of anyone who tries to convince you of get-rich-quick schemes. Investing is a patient man’s game. That being said, history reveals some patterns to those of us who pay attention.
Looking at silver data over the last 20 years, we’ve noticed a peculiar phenomenon that happens like clockwork. Every time this indicator rises, silver prices are in a lull.
When the indicator deviates too far from the mean and for too long, a crash is not far behind. Interestingly, the indicator’s downward swing almost always predicts an upward movement for silver prices.
Silver investing can be challenging. However, the smart silver investors do more than simply bet on the intrinsic value of hard assets. They watch for the opportune moment.
Silver Bullion: The Ultimate Hedge
Precious metals form the backbone of monetary history. Silver and gold were currency before paper money was even considered legal tender. There is weight in that history, and also in the durability and security of hard assets.
Silver bullion does not yield to fire, plague or water. Its physical integrity is far greater than paper money, but it’s bound by physical quantity. Governments prefer fiat money, because central banks can print money to counteract the effects of business cycles.
Modern currencies are defined by the health of the economy. Well, that and currency speculation. The result of fiat money was not the end of silver, but rather the beginning of silver as an economic hedge. The same is true for gold.
Gold and silver became talismans against economic uncertainty, a safe haven for investors to weather the instability of financial markets. They tend to move in tandem, rising and falling in opposition to stock market movements.
But occasionally the market falls into distortion. The gold-silver price ratio helps us make sense of the relationship between gold and silver.
Gold and Silver Prices Are Out of Balance
Silver prices have tumbled along way from their high in 2011, falling over 70% from the $50 peak to $16.01 at the time of writing.
Chart courtesy of www.StockCharts.com
The grey metal is unusually despondent considering the level of uncertainty around the world. China’s stock market crash during the summer should have stoked considerable fear, not to mention Greece’s showdown with the EU and IMF.
But prices are stagnant. The most striking feature of silver’s decline is how much further it fell than gold. Gold is down just over 40% in the same time frame.
The 40 year historical average between gold and silver shows the ratio hovers around 42.8. That means every ounce of gold should convert to 42 ounces of silver. However, 40 year average still measures the ratio after hard currencies were abandoned for fiat money.
A true accounting of the gold-silver price ratio should be drawn from the natural relationship between each substance. How much gold would there be if we mined every deposit on Earth? And how much silver would we find?
When we calculate the natural rate of the gold-silver price ratio, it works out to around 17. That’s considerably less than where it is today.
Chart courtesy of www.StockCharts.com
Over the last 20 years, a startling pattern has emerged. Every time the gold-silver price ratio goes above 70.0 (70 silver ounces to 1 gold ounce), it means that investors are severely undervaluing silver relative to gold.
The ratio peaked in 1997, 2003, and 2009. On each occasion, the resulting rebalance between gold and silver caused huge upswings in the price of silver. Silver investors who bought at the right time would have made 70%, 200%, and 420% respectively!
Here’s the Bottom Line on Silver Prices
Right now the ratio is sitting at 75.0. Remember that 70.0 is the magic number, and we’re definitively past that point. Last time silver prices skyrocketed, the grey metal hit $50 an ounce. History suggests it may happen again.