- Discount silver
Profit scenarios for silver
Two ways to take advantage of the
For the past two years, silver has traded at a discount to
gold. Typically, gold sells for 55 times the price of silver, but since
August of 2008, the ratio has tilted heavily in the favor of gold. The chart
below shows this ratio which is calculated by simply dividing the spot price
of gold by the spot price of silver.
I’ve written about this ratio frequently, and I’ve pointed
out that it is “mean-reverting” which is just a fancy way of saying that it
eventually returns to the average. It’s returned back to the average hundreds
of times in the past 120 years – and it’s one of the most reliable mean
reverting ratios out there. It’s the Old Faithful of the investment
With silver taking
off, some investors might expect a correction. But even with silver prices
north of $20, the ratio is still showing that silver prices are relatively
The price performance of silver shows a strong uptrend is
currently underway, but I’ve been expecting a push on silver’s price for
months now. It’s traded at a 20-40% discount to gold for two years, but as I
discussed above these mean-reverting trends have a tendency to average out
over the long term.
That means that silver could continue to rise, and break
through the historical ratio to trade at a lower ratio than 55 times the
price of gold. The upside could be huge for silver investors – even those
that get started investing in silver today.
For instance – if
gold stays above $1,200 an ounce, silver prices would have to reach $21.81 an
ounce just to get back to “normal” ratio levels. That’s a 9% increase from
today’s silver price.
But if the ratio swings even further in favor of silver, as
it did in 1998, 2006 and 2007 when it dipped below 45 then silver prices
would soar to $26.66 an ounce – a 32% gain. Of course, this assumes that gold
prices remain where they are.
I don’t know if the ratio will reach these levels anytime
soon, but it has (and has even gone lower) dozens of times since 1971. At
that time both silver and gold were demonetized.
The good news is that if you buy silver today – even though
it’s made some extremely strong gains this year – you’re STILL buying at a
discount to gold.
As I said yesterday, I just bought some gold a little over a
month ago – and I’m still buying physical silver.
The uptrend is in place, and with investors
of every stripe looking for a new place for their money, I think we can
expect the nice gains in silver to continue.
everyone I know to buy physical silver, as
an insurance policy protecting you from currency collapse. I own some
physical silver myself, but as an alternative there are a multitude of silver
ETFs to choose from. I normally tell my readers to steer clear of ETFs, but I
recently worked with my boss Ian Wyatt to put together a detailed report on
our favorite commodity ETFs, including an ETF that has actually outpaced
gains made in the price of silver.
You can access the full write-up on these
ETFs for free by clicking