Is Silver Set to Soar?

Could silver be set to soar?

Analysts Barron’s spoke with recently think so.

An article published on the business journal’s website last week predicted the white metal will emerge as a winner for the second straight year.

With a per-ounce price of $17.41 for silver futures as of Friday, analysts say the white metal is poised for a big climb, particularly as the gold-to-silver ratio stands well above historical averages.”

Peter Schiff talked about the silver-gold ratio over the summer, noting it is historically very high. This means silver is extremely undervalued. The current silver to gold ratio stands at nearly 76:1. This means you can buy almost 76 ounces of silver with one ounce of gold. Consider the historic average ratio hovers around 16:1, and the modern average over the last century is around 40:1. As Peter said, “This is silver on sale.”

It’s one of the greatest silver sales of all time, relative to the price of gold.”

Precious Metals Investing For Dummies author Paul Mladjenovic agrees with Peter’s assessment.

Silver is definitely undervalued compared to gold and as a stand-alone investment. I consider it likely to be the most undervalued asset in the general investment markets.”

Gold and silver have both shown nice gains in 2017, but the yellow metal has outpaced silver. Gold is up nearly 12% while silver gains currently stand around 6%. Last year, silver’s climb of about 16% outpaced gold’s rise of almost 9%. Mladjenovic told Barron’s he expects silver to close the gap again this year.

Silver isn’t keeping pace with gold because the market perception is that gold is a safer play, while the market perceives silver’s role as exposed to economic weakness. But as inflation heats up, more of the public will realize silver’s second role as a store of value and inflation hedge.”

Mladjenovic also said the world’s increasing appetite for silver as an industrial metal will ultimately push overall demand higher. Silver is an important element in the manufacture of solar panels. China, in particular, continues to rapidly increase solar energy production. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020. Last year ranked as the strongest on record for solar-related silver demand.

This comes at a time of tightening supply. Total silver mined in 2016 fell by 0.6% to 885.8 million ounces. Silver scrap supply fell to 139.7 million ounces in 2016, despite higher silver prices. It was the first decline in overall silver production since 2002.

But many analysts say a weakening dollar will be the primary factor driving silver’s gains. Gold Newsletter editor Brien Lundin told Barron’s he thinks the dollar is the main reason gold has outperformed silver so far this year.

Gold and the greenback have been trading in a very close inverse correlation for about the last two years, and the relationship has only grown closer this year.”

Lundin noted that the dollar index has fallen 8.8% this year because of “underlying skepticism” about the Federal Reserve’s ability to keep raising rates.

Even the Fed admits a new-normal rate environment would mean a federal-funds rate of around 2.5%. Balance that against its goal of 2% inflation, and you see they [the Fed] want an ultralow real-rate environment that would be bullish for gold and bearish for the dollar.”

Peter chimed in on the Barron’s article, noting dollar weakness will be good for both gold and silver. He told the magazine he sees a “strong likelihood” that the Fed will have to cut rates and revert to quantitative easing before it can lift rates back to historically normal levels. He told Barron’s a stock market correction or economic decline will force the Fed’s hand.”

When rates come down, the dollar will fall and metals will rise.”

Silver tends to get lost in gold’s shadow, but it seems more investors are taking a peek at the white metal. Back in August, we offered five reasons to buy silver. This latest Barron’s report reinforces the fact that there are good reasons to take a close look at silver now.

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