Silver $50.00? Not as Crazy as You Might Think
Silver prices are presenting an opportunity of a lifetime. Investors shouldn’t overlook the precious metal whatsoever; the market fundamentals suggest silver prices are way too undervalued.
Each day, there’s more evidence suggesting demand for silver is strong and growing. This is the complete opposite of what the mainstream has been telling us since the decline in silver prices began in 2013.
Physical Bullion Shortage Could Send Silver Prices Soaring
Consider the coin sales at the U.S. Mint, for example. So far this year, until November 15, the Mint has sold 42.02 million ounces of silver in American Eagle coins. (Source: “Bullion Sales/Mintage Figures,” U.S. Mint, last accessed November 16, 2015.) This year, silver sales at the U.S. Mint are on pace to hit an all-time high, even with the U.S. Mint having halted silver sales for some time in mid-2015.
Looking at this, one must really question if silver prices really matter to investors. If the prices did matter, we would see sales slow down significantly, as it was expected my many.
If you look closely at the silver market, it looks as if we are truly running out of silver. I am closely looking at the premiums on coins at certain dealers. If you were to buy one American Eagle silver coin, you are now paying more premium than you did any time since 2009.
Demand and examples of shortages aren’t the only things that suggest silver prices are undervalued. One key silver price ratio also suggests the same: the gold-to-silver ratio. This ratio essentially tells how many ounces of silver it takes to buy one ounce of gold, but it’s very powerful in providing an idea of where silver prices could go next.
Please look at the long-term chart of the gold-to-silver ratio below and pay close attention to the circled areas.
You see, the gold-to-silver ratio has been spot on in pointing to when silver prices are undervalued or overvalued. When it’s low, it suggests silver prices are overvalued.
Chart courtesy of www.StockCharts.com
In the chart above, this ratio currently stands above 70. Whenever the ratio has been above this level in the past 20 years, we’ve seen silver prices go higher. Last time the gold-to-silver ratio was at this level, it was 2008; a few years down the road, silver prices were hitting $50.00 an ounce.
Why Silver Prices Are Presenting Opportunity Like 2008
I remember the havoc in the financial markets in 2008 and 2009 very clearly. In the midst of all this, great investments were disregarded by investors. They just wanted to sell and not pay attention to any other opinion whatsoever. It was actually a great point to buy if you ignored the noise and paid attention to the fundamentals.
Silver prices, as I see it, are in a similar situation. Investors are ignoring the gray precious metal and pessimism towards it is too severe. Meanwhile, the dynamics of the silver markets are changing in favor of the bulls.
Remember this when it comes to making investment decisions: in times of great uncertainty, you find the best opportunities. The upside potential is solid. If the asset class is reaching its all-time-highs, your returns may not be as great.