People are furious at silver. I mean, investors who bought silver for the past eight years are seriously biting their lips and cursing within. It has traded in correlation with copper and oil, not with gold.
The gold/silver ratio is so high that it takes a NASA telescope to see it; the ratio only traded in this way in 1991.
The 50-year average stands at 57.1, but since 1994, the average has widened to 64.8. Since the Great Recession, the average has been 66.3 and in the past year, it has been hovering around 80.4:1.
Courtesy: SeekingAlpha Victor Dergunov, Yacharts
We’ve been bullish on the miners since 2016 and we’ve nearly doubled our money just by buying and holding the index; but silver has been horrific, which is the reason I’m extremely bullish on it after gold’s recent breakout.
Silver begins to outperform in the later stages of a bull market, since gold is the default trade and silver is Poor Man’s Gold.
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Not only that, but the average person is not even thinking about silver. Even silver bugs are over it and thinking about the fact that they probably missed the FAANG bubble because of it.
Since Trump’s victory, the middle class isn’t as concerned as it was about recklessness in Washington, therefore gold sales are very weak on the retail side. It’s the institutional buyer that’s currently trading in gold, not your friends.
This means that the mania hasn’t even begun to erupt, but that’s not the only thing. There are billions of dollars ready to buy silver as it approaches the 100:1 level, which to many signifies a no-brainer opportunity, but the risk/reward even today is as good if you begin building a small position now, and increase it when the confirmation is in.
Take a look at how silver soars late:
As you can see, the fact that gold is rising while silver isn’t is not a new phenomenon, but the ratio reaching 93.26 is.
Silver’s thousand industrial uses have kept its price down due to the slow growth of the global economy for the past few years, coupled with low inflation.
The way to trade here comes down to your level of expertise and conviction, as well as your needs:
- Physical Silver: If you’ve never held silver eagles in your hand, it’s a unique feeling. It’s also one of the best ways to own it, especially if you store it on the premises and avoid storage fees.
- Physical Silver Trust: You can actually own the trust that is physically backed by silver ounces, one for one, with a click of a mouse.
- Options: If you believe the price is headed higher and you’re willing to risk being wrong and losing a premium, you can use call options, like I just did.
- Mining Shares: There are very few direct miners of silver, so when the price is rallying, these run faster than cheetahs in the African savanna.
The sentiment towards silver is so bearish that hardly anyone believes it will soar ever again. In January of this year, they said the same thing about a certain cryptocurrency called Bitcoin, which, since then, has gone up by a factor of three – we’ve made a fortune on it!
Silver will be $20/ounce again and, most likely, it won’t take long to get there.
Research Partner, PortfolioWealthGlobal.com
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