Ten years ago, silver was worth $13 per ounce.
At the time, it would have been silly to make any specific predictions about what the price would go to on a specific timeline. But it was correct to acknowledge the long term, physical precious metals hold their value.
You hardly have to worry about losing value in silver, as long as you didn’t mind waiting. But one indicator in 2009 said you probably wouldn’t have to wait long.
Silver was trading at a ratio of 70:1 to gold, meaning people were paying 70 times as much for an ounce of gold, compared to one ounce of silver.
Over the last century or so, the ratio has historically hovered around 50:1.
And over the very long term, it’s been more like 16:1.
By 2011, the price of silver reached almost $50 an ounce, and the silver to gold ratio hit 32:1.
You could have sold silver bought in 2009 for a 385% gain.
It’s not that you want the cash… long term, precious metals are still a better place to store a good chunk of your wealth.
But when you sell high, you can reload your silver position after a correction in the prices of precious metals, and scoop up more silver at a much lower price. You keep the difference.
And with the silver to gold ratio back below 50:1, chances are good that the price is peaking. And indeed, the price of silver did drop… and continue diving.
A couple of months ago, the price of silver got down as low as $14.34 per ounce.
At the same time, gold was around $1,270 per ounce. The silver to gold price ratio was 89:1.
It hasn’t been that high in almost thirty years. And that indicates that it’s once again time to be bullish on silver.
Today, as of this writing, with gold around $1,500 and silver about $17 per ounce, the ratio is still looking nice, around 88:1.
And keep in mind that gold is also rising. For the gap to close so one ounce of gold is worth 50 ounces of silver means silver would increase by quite a bit.
Now to be fair, the ratio could also close if the price of gold plummets, instead of silver increasing.
But most indicators say gold is also setting up for a bull run, after languishing for about seven years.
For one thing, the USA is $22 trillion in debt, and buyers of that debt are already slowing down.
Ultimately, the government may force the Fed to buy more of its debt, which would likely drive up inflation, or risk a default.
That’d be bad news for theUS dollar.
Precious metals are a perfect hedge in a world where central banks manipulate the currency.
But there’s another, almost inevitable reason to believe the price of gold is going to go up from here… and that’s supply and demand.
Large mining companies just aren’t pulling as much gold out of the ground as they used to. Gold’s been left for dead by investors, and mining companies have had to cut exploration costs just to survive.
In the 70s, 80s, and 90s, gold deposits of 50 million ounces or more were found at least once per decade. And deposits of 30 million ounces or more were discovered about ten times per decade.
But in the last 15 years, there have been no gold deposit discoveries of 30 million ounces or more.
Now with the price ratio of silver to gold at 88:1 you would expect them to be pulling 88 times as much silver out of the ground compared to gold. After all, scarcity is a major aspect of the prices of these precious metals.
But the actual ratio of silver to gold being extracted is 9:1.
That means that:
That says it is time to hedge some of your wealth, and buy precious metals– especially silver if you are looking for more upside potential.
But keep in mind that even though silver and gold are practically guaranteed to hold their value in the long term, that growth is not linear.
Remember, these aren’t predictions about specific prices at specific times. These are long term trends.
If you had bought silver in 2011 you’d be sitting on a 71% loss today.
But thousands of years of history tell me that even if you bought silver at the peak, you will eventually recoup those losses.
Of course, I much prefer to buy at really low prices. And right now, the price is right.