What’s Next for Silver Prices?
After years of trading at a discount, silver prices are finally rebounding. The hollowness of the stock market recovery is finally becoming apparent to investors, and their dawning comprehension could drive 420% gains in the silver price. It’s happened before.
There is a foolproof indicator that has successfully predicted the last three boom periods for silver. Right now, this indicator is saying silver prices could more than quadruple, so pay close attention. These opportunities are rare.
Silver has a historical relationship with other precious metals. The correlation between those commodities can help us determine what the silver price should be.
Not only does this indicator help us predict future prices, but it also helps us know when to make the trade.
Timing a trade is one of the most difficult things in investing. I don’t always think it’s possible, particularly with stocks, but this is a rare exception. This metric has proven effective at turning average Joes into millionaires.
The indicator I’m referring to is called the silver-to-gold ratio.
You see, gold and silver are highly correlated commodities, meaning their values tend to move in sync. When gold prices rise, so do silver prices.
However, that relationship isn’t always 100% accurate. Sometimes investors get it wrong, and the spread between silver and gold gets too big; one of the precious metals becomes undervalued.
In this case, silver prices have clearly fallen out of sync with gold. An ounce of gold is almost 74 times more expensive than an ounce of silver.
This hasn’t always been the case. As recently as 2011, a little more than 30 ounces of silver would have been enough to buy an ounce of gold.
But commodities began to fall after 2011. The Federal Reserve rode in like Don Quixote to save the stock market with a big bag of stimulus. The Fed had been printing tens of billions of dollars every month to prop up the stock market. And it worked.
Investors fled hard assets like gold and silver. The Dow Jones, NASDAQ, and S&P 500 all reached all-time highs in the ensuing years. It was boom times for stocks, but the downswing in precious metals had caused a distortion in the silver-to-gold ratio.
Luckily, we’ve seen this before. Take a look at this chart:
Chart courtesy of www.StockCharts.com
The silver-to-gold price ratio has peaked and crashed three times in the last 25 years. On each of those occasions, the threshold was 70. Every time gold became more than 70 times more expensive that silver, the index was due for a crash.
When the index crashes, silver prices rise. The gray metal skyrockets every time this indicator crosses 70, because that’s how the ratio balances out. In the last three crashes, silver prices gained 70%, 200%, and 420%, respectively.
And remember: the silver-to-gold ratio is 74:1 right now.
History has shown, time and again, that this indicator works. How can we ignore it when it is flashing a warning sign that silver is cheap relative to gold?