Due to the update two weeks ago on the mini stock market correction, today’s Monthly Review is going to specifically focus on Silver rather than Gold.
Something interesting is happening. If you follow historical precious metals price charts it is common to see Silver generally tracking Gold. There may be a delay but the two precious metals are big brother and little sister, two parts of the precious metals family and their relational connection over time can clearly be observed. But, very very occasionally, the little sister does something different.
One of those extremely rare times is this month. So, this month’s update is going to hone in on this rare phenomenon, which has only happened for a few days in 2003, 2008, 2016 and now. This can be clearly seen in the following graphic taken from Macro Trends chart database. Note the very narrow grey sections of time where the ratio reached this month’s level, the 1/80 line:
This month’s Gold-to-Silver Ratio
Our regular subscribers will remember that hidden within last weeks’ article was an observation I made, which turned out to be incredibly prescient because, this week, the resounding voice of international commentators highlight this observation. I stated, almost as a throw away comment, that “5 years ago the price of a 1oz Silver coin was about 1/50 of the price of 1oz Gold coin. Today it is 1/80 of the price. This means the price of Silver has gone down in relation to the price of Gold, even though the price of both has been pushed down over that period. When commentators say “Silver is currently on sale compared to Gold” it is this Gold to Silver ratio they are referring.”
This week, some of the greatest and most trusted voices within the precious metals markets are focussing in on this incredibly rare price ratio. Mike Maloney is probably one of the most well known. He has produced a 9 minute video, which I highly recommend. Within it, he highlights the fact that the Gold to Silver ratio has only been at this level for a few days across the last ten years. If Silver is only currently priced at 1/80 of the price of Gold, it means Silver’s price is cheaper compared to the normal price of Gold. For every ounce of Gold you can buy 80 of Silver. Over the last ten years this price ratio has swung between 1/80 to 1/30; the latter meaning you could only buy 30 ounces of Silver for one ounce of Gold.
(Disclaimer: This video is for educational purposes only. We do not endorse the company GoldSilver.com or the presenter Mike Maloney. We believe that the data presented within this video to be beneficial to our readers.)
In an aptly titled piece The Gold-to-Silver Ratio: What is It and Why Does It Matter? the following introduction as to why this is such a key indicator of a more profitable time to buy Silver is given: “For experienced investors, the gold-to-silver ratio is one of many indicators used to determine the right (and wrong) time to buy or sell their precious metals. Other factors – including economic uncertainty, inflation frenzy and debt – have encouraged millions to invest in gold and silver, and in the past few years, small-scale investors have begun to climb aboard.”
Reasons for the Ratio
There are many observers of physical Silver that have long held that its price is “manipulated” by large players within the market. This theory has raised its head again this last month with some force, notably from both Maloney and The Market Oracle, the latter believing that the reason may be “the accumulation of large amounts of physical silver by JP Morgan Chase Bank.” They go on to expound; looking at the markets in themselves, the price of Silver should in reality be much higher compared to Gold. But even then a word of caution is given: “And just what are JP Morgan Chase Bank’s intentions regarding the hoard of silver they have accumulated? Corner the market? Drive the silver price much higher? Then sell with huge profits? A big problem comes after the accumulation. When and how do you sell what you own in order to take those huge profits – without dumping excess supply on the market? Ask the Hunts. They had trouble liquidating at any price; even without ‘huge profits’. But what if JP Morgan’s intentions are entirely different? What if their plan is to suppress the market price for silver? Not everyone wants higher silver prices.” A good and fair point.
What Do the Heavyweights Say?
Even so, several market heavyweights see this current price ratio of 1/80 Gold to Silver as especially ‘bullish’ for the Silver price over the coming year: “Money Morning Resource Specialist Peter Krauth - a veteran of the precious metals market with over 20 years of experience - has made his bullish silver price prediction for 2018. Since the 1993 recovery, silver prices collapsed again in 2011. From peak to trough, the price of silver plummeted 70% by the end of 2015. Now, we're just starting to see the silver price bounce back, and that could make right now one of the best buying opportunities we've seen since 1993.”
In addition, the futures market is showing that money managers are betting on the Silver price going up, not down. When they buy future contracts in Silver, they are showing that they believe the price will go up, when they sell that is a signal they believe the price will fall. Of course, they can be wrong. But, there is currently a strong net Buy signal for Silver within the future’s market. As Money Morning states in an entirely different article to the previous quoted: “There's no better indicator of where prices will move next than where people are putting their money.”
Mixed Messages from Inflation and Interest Rates
The other factors arguably playing into the currently lower Silver prices are believed to be the current mixed messages coming from U.S. inflation and interest rates. There is market talk of rising interest rates, which tends to negatively affect precious metal prices: “The problem, especially in the case of silver prices, is the following. While the markets remain in casino mode, the higher inflation has everyone thinking more optimistically about the U.S. dollar. Inflation, goes the logic, will push the Federal Reserve to raise interest rates, pushing the dollar higher.
Admittedly, the argument makes sense. There’s logic to that. But, on closer inspection, there’s no reason the U.S. dollar should expect to achieve any major gains compared to other currencies (and Bitcoin is not one of these). But, perhaps overly optimistic or pessimistic—it’s hard to tell these days—inflation could reach higher levels than expected. This has left silver vulnerable to a lack of curiosity.” (Talk Markets) “The greenback appears more profitable, thereby attracting the attention of more traders. Moreover, because silver prices—as all other commodities from gold to oil—are priced in dollars, silver becomes less attractive to foreign buyers. Higher interest translates to a higher dollar value. Buyers from abroad using other currencies, whether euros or Chinese yen, have to pay more for every ounce of silver. Silver also has some technical applications. It’s used in circuits, coupled with other materials to become a superconductor. It has no substitute. Demand for such products remains high.”
What does this mean for the future?
Many of our regular readers will know that historically the pre-1900 average ratio of Gold to Silver is actually 16 to 1. It is always useful to work out what the price would be today if the ratio actually returned to this historical average. Based on today’s Gold price Silver ‘should’ be nearer £60 an ounce, not £11. And although some might question whether the ratio could return to this historical level, on the other hand, in the 1900’s there was no huge industrial requirement for silver in electronics. So, surely there is an equally if not more valid argument that the Silver to Gold ratio should be even lower, precisely because physical Silver is more essential to our modern way of living now than it was in the 1900’s. It is one of the world’s most efficient conductors of electricity.
“The gold-to-silver ratio is indeed one of several valuable tools used to determine the optimum time to buy gold or silver bullion. However, it is wise to avoid haste. Only the most experienced investors make profits using a short-term view, and even they suffer errors in judgment. With patience, research and a long-term view, you may choose to buy silver when the ratio is high – buying higher quantities with fewer dollars. Disclaimer: Information contained in this article is NOT to be considered investment advice. Do your own research and evaluate your individual situation before making investment decisions.” (Provident Metals)
I’m going to quote from the ever awake Seeking Alpha for my concluding paragraph, as they so succinctly summarize my entire point this month so well in four easy to remember bullet points:
- Gold-Silver ratio has reached a key historic resistance level.
- Silver price moving averages are pointing to a price breakout.
- The current silver bear market is now stretching past historic timelines.
- Dollar weakness and inflation are pointing to an upside breakout in gold and silver, and silver's volatile nature will likely drive it hard and fast to the upside when it finally moves.
Call one of the Bleyer Team now!
To purchase Silver coins and bars call one of the team now on 01769 618618, email [email protected] or simply browse and buy Silver via the Bleyer website.