Key Ratio Says Silver Prices Could Soar
Silver prices are setting up to reward investors big-time. Don’t listen to the noise suggesting the gray precious metal isn’t even worth looking at.
Here’s what you really need to know: From a fundamental perspective, silver prices are way too undervalued. It would be foolish to ignore this precious metal.
Consider the gold-to-silver ratio. This ratio essentially tells how many ounces of silver it takes to buy an ounce of gold. It is used to value silver prices relative to gold bullion prices. Over time, this ratio has proven to be a very powerful tool in telling where silver prices could go next.
I have mentioned this ratio briefly before as well. With this said, please look at the chart below.
Chart courtesy of www.StockCharts.com
The gold-to-silver ratio currently stands at its highest level since the late 90s. You see, whenever silver prices are considered undervalued, this ratio goes higher. Silver prices are considered overvalued when this ratio is low.
Also, something interesting you may have noticed already is that in the past two decades, whenever gold-to-silver ratio reached the 80s, we saw silver prices move to the upside. This is the level at which the ratio currently stands.
Just by looking at the gold-to-silver ratio, I can’t help but ask one question: how high can silver prices go?
Since 1970s, the gold-to-silver ratio has averaged around 56. If we say that’s where the ratio will end, then assuming that gold prices will remain the same, around $1,250 an ounce, silver prices will have to increase to at least $22.00 an ounce—or roughly 40% higher.
I anticipate the gold-to-silver ratio could see its level last seen in 2009—below 35. For this to happen, and assuming gold prices remain constant at $1,250, silver prices will have to go to at least $35.00 an ounce—or about 125% higher from their current levels.
Keep in mind that in these examples, a gain of 40% or 125% in silver prices was assumed when gold prices were kept constant. I highly doubt this will be the case. So, silver prices will have to go much higher for the gold-to-silver ratio to come back to its historical average.
Silver Prices Outlook for 2016
Dear reader, I will be honest here: nobody wants to talk about silver right now. Why? Because it’s down significantly and investors have incurred massive losses over the past few years. I don’t blame them at all for this.
From a contrarian point of view, this is the time to look at silver. Consider the old adage on Wall Street that goes “Buy when there’s blood in the streets.” Well, the silver market has experienced a very similar phenomenon over the last few years.
Now, all the signs—the gold-to-silver ratio being just one—point to silver prices potentially seeing massive upside sooner, rather than later.
I have said it before and I will say it again: don’t ignore silver and silver-related investments, as they could generate substantial returns over the next few years. I continue to see 2016 as the year when silver prices begin their next bull market.