Silver Prices Could Be Poised to Skyrocket
Although silver prices have been down in the dumps lately, there are some positive signs for the silver bugs. Anyone interested in silver investing should pay attention to this incredible indicator that’s predicted huge gains for silver prices in the past.
By “huge,” I mean increases of up to 420%, which is the kind of profit investing dreams are made of. But the last few years have been terrible for silver investing, with silver prices falling from $50.00 in 2011 to its current level of $14.17.
Chart courtesy of www.StockCharts.com
That’s a decline of more than 70% in just a handful of years. What explains the decline? There are several factors pushing down silver prices, but none of them will linger for much longer. Specifically, the Federal Reserve is dragging down silver prices, but once again, that won’t last.
America’s central bank has been holding interest rates at historic lows and printing a ton of cash to prop up the stock market. The Federal Reserve was hell-bent on saving the economy, but seven years after the financial crisis, I think it’s time for a change.
In order to see a resurgence in silver prices, the Federal Reserve must end its quantitative easing program. Janet Yellen and her team at the Fed shook their money printing habit last year, but the rock-bottom interest rates persisted till this year.
Silver prices could skyrocket in December when the Federal Reserve is scheduled to raise rates. Don’t just take my word for it; take a look at this key indicator.
Silver-to-Gold Price Ratio
Silver prices are comparatively cheap, according to an amazing metric known as the silver-to-gold price ratio.
Precious metals like silver and gold typically move in tandem, but there are moments when they fall out of whack. One or the other can become underpriced. Right now, silver prices are disproportionately lower than gold prices. Don’t get me wrong; both precious metals saw massive drops from 2011 to today, but silver prices were hit far worse.
Historically (I’m talking over the last 40 years), one ounce of gold traded for 42.8 ounces of silver. There’s a bandwidth within which the silver-to-gold price will fluctuate; however, sometimes the conversion rate can drift too far from the mean.
Usually, the alarm bells should start ringing when the ratio tops 70. In the last 20 years, we’ve seen the silver-to-gold price ratio top that magic number and each time it happened, silver prices have skyrocketed, thus rebalancing the conversion rate.
Chart courtesy of www.StockCharts.com
Those three events were in 1997, 2003, and 2009. Each time, silver investors who got in when the ratio peaked could have made 70%, 200%, and 420%, respectively.
The Bullish Case for Silver Prices
You’re probably wondering what the ratio currently is. I mean, if it’s over the magic threshold of 70, wouldn’t that mean we’re due for rising silver prices? Well, that’s the kicker. The silver-to-gold price ratio is currently at 76.
Judging by history, we could see silver prices skyrocket in the near term. But those types of runs usually require a catalyst of some sort, a precipitating factor that ignites either optimism or pessimism. That’s where the Federal Reserve comes in.
A majority of economists estimate a rate hike in December 2015. Markets have grown incredibly complacent during seven years of extraordinary support from the Federal Reserve. All the risk of global uncertainties were ignored in favor of stocks.
But all that is coming to an end. Investors will seek the relative safety of precious metals like silver and gold to hedge against an economic collapse. The demand for precious metals will cause a surge in silver prices, thus rebalancing the conversion rate between gold and silver.