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The Silver Lining Ahead

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The greatest opportunities are often staring us at the face. But many of us are blind to them. Why? Great opportunities typically emerge in a subtle and silent manner--like a thin silver lining gently tracing the outline of a gloomy cloud. We tend to focus on the dark cloud, but not the silver lining. And that is what’s happening right now in the silver market.

Silver has broken through a critical price point. And many people don’t see it.

Not only does this moment present a great opportunity to buy silver, the opportunity itself happens to be a prudent one. Sure, everyone wants to load up on an IPO for what might become the next great company. But such an opportunity is fraught with risk, as you can never predict whether an IPO will explode into profits or implode all the way to zero.

In contrast, silver doesn’t come with that risk. And you know the reason for this--same reason that everyone across the world has known for millennia: silver, like gold, is sound money. It’s “natural” value as money is immune from such implosions. Its value is robust.

Pay attention to the gold-to-silver ratio

Over the last century, the average gold-to-silver ratio has been 47-to-1. This ratio simply states how many ounces of gold are equal to one ounce of silver. 47-to-1 is also the baseline that seasoned experts use to decide where to put their money.

  • If the gold-to-silver ratio falls below 47-to-1, experts will load up on more gold than silver.
  • If the ratio balloons over 47-to-1, experts will load up on more silver than gold.

Where is the ratio right now? It has ballooned to 73-to1!

At the time of this writing, COMEX Gold futures are at $1,257.80 while COMEX Silver futures are at $17.20. Gold is still a good buy, as it is always a wise thing to hold, but silver currently offers a compelling opportunity at this price. Note that a 73-to-1 ratio is far from 47-to-1, the century-long average!

Besides the fundamentals, technical indicators are signalling an upward breakout

Silver began its current uptrend on May 9, which saw its most current low at $16.18. But even this low is higher than its December 2016 low of $15.86. From a technician’s standpoint, if the low points are consecutively higher, then it signals a potential upward trend.

More importantly, if you view the circle on the chart, you’ll see that silver had a breakout above $16.94. And this breakout took place with high buying volume. On the next day, there was high-volume selling, but look at what that did: the price of silver hardly budged.

This is a classic scenario of the “smart money” strong hands snatching silver from the not-so-smart weak hands.

But we won’t let all of this chart-reading stuff distract us from the wisdom that can be gleaned from this matter. Chart reading is a common tool in the domain of the speculator. We live in the domain of sound economics. So let’s think about the qualities that make silver a solid economic investment.

There are numerous benefits for holding silver

To start, both silver and gold share similar attributes. Both have seen centuries of use as solid wealth and mediums of exchange. Both tend to move in the opposite direction of the stock market, providing wealth stability during times of economic turmoil. And both are considered safe hedges for currency-based assets in a portfolio.

But unlike gold, which is considered by most investors to be the go-to asset for storing wealth, silver has an industrial value, something gold does not have. Around 56% of silver is used for industrial products such as medical equipment, electronics, solar panels, and more; and this is in addition to other applications that don’t fall within strict industrial use (such as jewelry).

Here’s the thing to keep in mind: industrial demand for silver sees no decline. In fact, its rise is correlated to the increase of technological production. Plus, silver has a very affordable entry price.

So although the gold-to-silver ratio will always be higher on the gold side, silver’s value is supported by its reliability as a form of money in addition to its industrial value. Gold cannot deliver both of these benefits, despite its higher value.

Here are a few other benefits to consider:

  • Silver is physically robust and not easily damaged from handling, unlike gold which can easily be bent, nicked, or scratched.
  • Industrial use keeps silver’s demand steady.
  • Silver is a tech-industry metal, which means that any shortage of supply can cause its price to skyrocket.
  • Silver’s low price makes it easy for anyone to experience an enormous growth in wealth should its price go skyward.
  • Should paper currencies collapse, silver would allow you to make smaller purchases, making silver more practical than gold.
  • The gold-to-silver ratio is extremely wide, making silver a wise buy.
  • While China, India, and other countries are loading up on gold, due to a cultural bias and preference toward gold, they are creating an opportunity gap by neglecting silver.

For millennia, silver has been the more prominent medium of exchange as compared to gold.

It’s time to rethink the value of silver, and to recognize how accessible and affordable it is, particularly at its current price levels.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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