Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Is This a Buying Opportunity for Silver?

  by    0   0

Gold’s recent correction has taken silver down with it. The white metal dipped below $21 an ounce at its lowest, about $8 off its August highs.

That has led some to speculate that we’ve seen a knockout blow for silver. These are generally the same people who have declared the gold bull dead. But I think it’s way too early to hang “rest in peace” over the silver market for the same reasons I don’t think the gold bull run is over. In fact, this may be an ideal buying opportunity.

In order to begin saying last rites for precious metals, you have to believe the Federal Reserve is actually going to tighten monetary policy and the dollar is going to remain strong. Both of these prospects seem pretty implausible.

The big drop in both gold and silver last week was primarily been driven by dollar strength.  Investors have moved into the dollar due to concerns about a resurgence in coronavirus in Europe, the possibility of further economic lockdowns and political uncertainty with the upcoming presidential election.

But despite the resurgence of the greenback, the fundamentals don’t look particularly good for the dollar. It’s difficult to imagine a world where the dollar remains strong given all of the dollars the Fed is pumping into the financial system. The money supply has grown at record levels for five straight months.

In many ways, the selloff we saw last week in both stocks and precious metals was a big temper tantrum because the Federal Reserve didn’t promise more stimulus during the September FOMC meeting. Sure, the central bank maintained its commitment to extraordinary monetary policy. Apparently, the markets don’t think that’s enough. But if you listen closely to Fed Chair Jerome Powell and other key figures at the central bank, it’s clear they remain all-in on stimulus. They would prefer Congress to pass another fiscal stimulus bill. But when you boil it all down, fiscal stimulus is monetary stimulus. If Congress spends more, it will have to borrow and the Fed will have to monetize all that debt — in other words — more money printing.

And I am almost certain that even absent action from Congress, the Fed will do what it can to keep the bubbles inflated. If stocks keep falling, the Fed will up QE. This is not the environment conducive to a strong dollar. In fact, Peter Schiff has been warning about a dollar collapse. He’s not alone. Yale economist Stephen Roach recently wrote an op-ed projecting that the dollar to plunge by as much as 35% next year.

This is extremely bullish for both silver and gold.

Industrial demand has a significant impact on the silver market. As a result, silver tends to be more volatile than gold. But at its core, silver is a monetary metal. It tends to track with gold over time. When gold goes up, it almost always takes silver with it. In fact, silver has historically outperformed gold in a gold bull market. If the gold bull market is still alive, so is the silver bull market.

And if that’s where your thinking lies, this may well be an opportune time to buy silver.

The silver-gold ratio has opened back up over the last several weeks. After closing to under 70-1 in August, the spread has opened up to nearly 80-1 today. That tells us that silver is once again extremely undervalued compared to gold.

The silver-gold ratio is simply the number of ounces of silver it takes to buy one ounce of gold. It has been historically high for months. It was well over 100-1 back in March. The modern average over the last century has been between 40 and 60-1. At some point, you would expect that 80-1 ratio to close up again, meaning silver should have a lot of upside.

The supply and demand dynamics also look good for silver. Investment demand has skyrocketed and supply is down. Mine output was hit hard by shutdowns due to the coronavirus pandemic, but silver production was already on the decline with mine output dropping four straight years.

Industrial demand has been flat due to the economic slowdown from the coronavirus pandemic. Even so, there are expectations of increasing industrial demand, particularly in the solar energy sector.  Even if the global economy is slow to recover, silver may get a boost from government stimulus as various programs funnel money into “green energy” projects.

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Government Policy Changes Should Boost Indian Gold Market

Some policy shifts recently announced by the Indian government in its Union Budget will likely have a positive impact on the country’s gold market. India ranks as the second-largest gold-consuming country in the world, second only behind China. The three key policy changes that will likely affect the gold market are:

READ MORE →

Fed Expands Record Holdings of US Debt

The Federal Reserve expanded its record holdings of US Treasuries in the fourth quarter of 2020 as it continued monetizing the massive federal debt. The Federal Reserve added another $253 billion to its Treasury holdings in Q4 according to the Fed’s Treasury International Capital data released on Feb. 16. That brought the central bank’s US […]

READ MORE →

US Treasury Department Set to Unleash Another Tidal Wave of Inflation

The Federal Reserve increased the money supply at a record rate in 2020. And a move recently announced by the US Treasury Department will mean even more money flooding into the marketplace. In other words, another tidal wave of inflation.

READ MORE →

The Fed Just Keeps Getting More and More Dovish

Is Jerome Powell the most dovish Fed chair yet? Peter Schiff said he wasn’t when he first took the position and was raising interest rates. But he is now. The minutes from the January FOMC meeting released last week bear this out. “We’re all doves now. That is the problem, the Fed gets progressively more […]

READ MORE →

Kansas Bill Would Make Gold and Silver Legal Tender in the State

A bill introduced in the Kansas House would recognize gold and silver specie as legal tender and repeal all taxes levied on it. The legislation would pave the way for Kansans to use gold and silver in everyday transactions, a foundational step for the people to undermine the Federal Reserve’s monopoly on money.

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now