Silver Could Be Poised to Come Out of the Shadows
While there’s been a lot of attention focused on gold over the last few months, silver has remained in the shadows. The white metal has lagged a bit behind as the gold market turned bullish over the last few months. But there are some good reasons to take a close look at silver.
According to Bloomberg, silver has advanced 10% since the first of the year while gold surged 18%. But dynamics look good for silver to close that gap:
Silver hasn’t been so cheap relative to gold for more than seven years and with mine supplies forecast to contract this year that may be a sign it’s ready to come out of the yellow metal’s shadow.”
Analysts Bloomberg talked to say silver mine production will likely drop this year for the first time in more than a decade, and demand is set to outpace supply for the fourth straight year.
Industrial use is an important factor in the silver market, but investor demand for the metal is robust as well. As we reported last week, demand for American Silver Eagles remains strong after setting a sales record in 2015. The US Mint continues to keep Silver Eagles on weekly allocation because supply can’t keep pace with demand. Meanwhile, February silver sales at Perth Mint jumped 167.54% from the same period a year ago. It was the sixth straight month of silver sales over 1 million ounces for the Australian mint.
The price spread between gold and silver also looks favorable for the white metal:
An ounce of gold bought about 83 ounces of silver last month, more than any time since the financial crisis of 2008. That’s a signal to some that it’s relatively undervalued and will narrow the gap.”
As of today, that silver:gold ratio sits at 81:18. As SchiffGold Precious Metals Specialist Addison Quale pointed out in an article earlier this year, the average silver:gold ratio has been roughly 54:1 over the last 40 years. This means that when the price of an ounce of gold is about 54 times that of an ounce of silver, the metals are essentially fairly valued. Conservatively, extending upwards and downwards about 20 notches indicates gold is overvalued in relation to silver at a ratio 75:1 and silver is overvalued compared to gold at a ratio of 35:1.
The ratio today indicates gold is currently extremely overvalued compared to silver. That means silver likely has a strong upside.
But ultimately, investors should focus on the long-term value of silver. Like gold, it is “real money,” not fiat currency. While its price may fluctuate in the short-term, it has historically held its value over time. Silver also provides a means to barter. This could prove extremely important in the next economic crisis, as the Greeks found out last summer.
The bottom line is that while gold is shining bright right now, there are also good reasons to take a look at silver.
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