Could Silver Prices Hit $50?
Silver prices are one of the last bargain-bin sectors and they are now finally moving higher—triple-digit returns could be on the way.
As I’ll show you today, one indicator is flashing a huge “Buy” signal. Investors won’t get rich quick. But before the run is over, we could see prices double—or more.
Let me explain…
The past few years have been hard for precious metal investors. Since the start of 2012, gold prices are off nearly 30%. And as we have covered extensively here at Profit Confidential, gold mining stocks have been crushed.
Business, however, is even worse in the silver space. Spot silver prices are off 57% since the start of 2012. Most silver miners are struggling just to pay the hydro bill, let alone grow operations.
But here’s the good news: the situation has left silver incredibly cheap relative to gold.
In April 2011, one ounce of gold could buy you 32 ounces of silver. Today, that same ounce of gold will buy you 83 ounces of silver.
This is totally out of whack with the long-term averages. Historically, the price of gold is around 50 to 55 times higher than the price of silver. The last time the gold-to-silver ratio was this extreme, silver prices soared 402%.
Chart courtesy of www.StockCharts.com
As you can see in the chart above, silver is cheap in relation to gold. Eventually, gold prices will have to fall or silver prices will have to rise for the gold-to-silver ratio to return back to normal. And with demand for the gray precious metal rising, I figure it will be the latter.
Silver is useful. The metal has thousands of commercial applications. And once consumed, it’s often gone forever. In most cases, silver is just too expensive to recycle.
Some of the world’s smartest money managers are also making big bets on silver prices. Last week, Security and Exchange Commission (SEC) filings revealed that billionaire Ray Dalio upped his stake in Silver Wheaton Corp (USA) (NYSE:SLW). As of December 31, the hedge fund manager owned more than 612,000 shares, valued at $7.6 million. (Source: “Silver Wheaton Hedge Fund Holdings,” Insider Monkey, last accessed March 1, 2016.)
SEC filings have also revealed noticeable buying activity in a number of silver miners last quarter, namely Endeavour Silver Corp (NYSE:EXK), First Majestic Silver Corp (NYSE:AG), and Pan American Silver Corp. (USA) (NYSE:PAAS). Because of the leverage inherent in these businesses, investing in these companies is like buying call options on silver prices.
Why are these Wall Street mavens so excited? I say it could only mean one thing: they see a giant rally in silver prices ahead.