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Silver Charts Biggest Monthly Gain in 9 Years

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Silver just had its biggest monthly gain in nine years.

The spot price of the white metal went into May at $14.96 per ounce and closed on May 29 at $17.98, a 20.7% increase. Silver futures did even better, with the price of silver for July delivery hitting $18.50 per ounce Friday.

Analysts think silver could get a further boost as economies open up. Although silver is fundamentally a monetary metal, industrial use is a significant source of demand.

Gold also had a solid month with steady returns in May, gaining about 2.4%. But silver’s big run helped narrow the silver-gold ratio. As of Monday morning (June 1), it had closed to 95.26-1. That means it takes just over 95 ounces of silver to buy one ounce of gold.

Earlier in May, the silver-gold ratio was 113-1, and in March, it hit a record of 120-1. At that point, silver had never been cheaper in terms of gold in over 5,000 years of human history.

Although the silver-gold ratio has closed, the white metal remains historically inexpensive compared to gold. We still effectively have silver on sale. Up until the 20th century, the silver-gold ratio remained within the ancient range of between 10 to 20 units of silver per unit of gold. As gold and silver’s role as a medium of exchange diminished, the spread widened, averaging around 40 to 5o-1. The current spread of 95-1 is still way above the modern historical norm.

Analysts have been expecting silver to break out. A recent article in the Financial Times declared, “Investors make big bets on silver closing giant gap with gold.”  The report points out that since silver hit an 11-year low back in March, holdings of silver-backed ETFs have surged, hitting a record high of 675 million ounces.

Silver was up almost 50 cents on Friday alone. It was not only a huge gain in the dollar price of silver; but also a big gain in silver priced in terms of gold. In a recent podcast, Peter Schiff said this is bullish for both the silver and gold markets.

That’s why I’ve been pretty much pounding the table for people to buy silver. Because not only is silver going to rise, in my opinion, but it’s also going to rise relative to the price of gold, which is also going to rise.”

Some analysts have actually argued that the rising price of silver is bearish for gold because the price of gold is falling in terms of silver. Peter said he doesn’t think that could be further from the truth.

I think it is bullish that silver is finally participating in the precious metals rally. I thought it was bearish for gold that silver was not participating. Not that it meant gold couldn’t go up, but it meant that gold wasn’t going up even faster. And I think that now that silver has kind of broken out of this downtrend and now silver is not only following gold higher, but potentially leading gold higher, I think that is bullish for gold.”

Peter emphasized that gold has a historic price relative to all other commodities, including silver —  i.e. the silver-gold ratio.

The further it veers from that price to the upside, the more you can argue gold is overvalued. But if we just have a general commodity boom, where all commodity prices are rising, then that keeps gold’s increase in check. And I think that’s what we’re headed for because we’re going to see a decline in fiat currencies.”

Typically, silver has outperformed gold during a gold bull market. Peter talked about this earlier in the year, saying “If we’re going to go to a new high in gold, if gold is going to take out $1,900, which I believe it is, silver should outperform.”

There is every reason to believe gold’s rally will continue. The Federal Reserve continues to print trillions of dollars out of thin air and inject it into the economy.

The supply-demand dynamics also look good for silver. Investment demand was already surging before coronavirus.  Global silver investment jumped 12% to 186.1 million ounces last year. This represented the largest annual growth since 2015. Meanwhile, silver mine output has steadily dropped over the last several years. Global mine production fell for the fourth consecutive year by 1.3% to 836.5 Moz in 2019. Primary silver production declined by 3.8%.

Silver is historically more volatile than gold because due to industrial demand. Slowing economic growth typically puts a squeeze on that industrial demand. But at its core, silver is a monetary metal and it tends to track with gold over time. And as already pointed out, it has historically outperformed gold in a gold bull market.

The silver-gold ratio tells us the white metal is still significantly undervalued. History tells us silver will eventually close the gap with gold. That means either gold will drop or silver will rise. Given the economic dynamics and the current extraordinary monetary policy, a continued gold bull run seems more likely and silver will probably come along for the ride.

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