Silver Prices: These “X Factors” Could Send Silver Prices Soaring in 2016

This Could Send Silver Prices SoaringThis Could Send Silver Prices Soaring

Silver prices haven’t performed as great as gold bullion in 2016 so far. This shouldn’t be a reason to get discouraged, though. In fact, it should be looked at as an opportunity.

If you think silver isn’t even worth a look, consider the following three reasons that suggest the gray precious metal is undervalued, has long-term potential, and could act as insurance for your portfolio, just like gold bullion does. I call these reasons “X factors” and most investors aren’t even looking at them.

X-Factor #1

gold silver spot price cme chart

Chart courtesy of www.StockCharts.com

Since the beginning of 2016, it’s been interesting to say the very least; investors are ignoring silver and buying gold bullion. If you look at these metals from a historical perspective, they tend to move in line with each other. Silver prices usually perform better on a percentage basis.

With this said, silver prices in terms of gold bullion, look severely undervalued. Please look at the chart above of the gold-to-silver ratio. At the very core, this ratio tells us how many ounces of silver it takes to buy one ounce of gold. Whenever this ratio is trending higher, silver prices are considered undervalued.

 

If you look at the ratio, it currently stands at the highest level in two decades!

X Factor #2

Know that with silver prices remaining suppressed, the future supply is very uncertain. This is something we have mentioned over and over again in these pages. We see producers across the globe cutting back on production and more of the same could follow. (Read more here about how the silver supply side is getting crushed: “Silver Prices: This Could Send Silver Prices Soaring 32%.”)

Production in Canada, the U.S., and other major producing countries have declined in 2015. Currently, there’s simply no light at the end of the tunnel.

As this is happening, demand for the precious metal remains resilient. This is the perfect recipe for higher prices ahead.

X Factor #3

You may be led into believing that silver isn’t worth keeping in your portfolio. It doesn’t do anything, right? Wrong. It provides insurance.

Look at the chart below. It shows silver prices (gray line) and the S&P 500 (red line) since the beginning of 2016. I have also plotted the correlation between the two (black line) and their performance.

silver spot price cme chart

Chart courtesy of www.StockCharts.com

Looking at the chart, silver prices have acted as a great hedge against stocks so far in 2016. You see, a hedge is essentially something that reduces your downside. Silver would have not only reduced your losses here, but it would have made you a little bit of money. In fact, silver increased roughly seven percent as stocks fell four percent.

Where Are Silver Prices Headed Next?

I am watching silver prices very closely. I will be bold here and say this: investors ignoring silver prices are making a grave mistake. It’s certainly something that shouldn’t be overlooked.

So far, the gray precious metal is one of the best performing assets this year. By the year’s end, it will not be shocking to see silver prices outperform gold bullion in terms of percentage gain.

Here’s something I also want my readers to know: pay close attention to silver mining companies. They will be the biggest winners at the end of the day.

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