Gold-to-Silver Ratio Says Silver Prices Could Surge
The mainstream media is busy boasting about the stock market. Indices hitting all-time highs is the topic of discussion all over the place. But don’t get too fixated on it. Look at undervalued opportunities. In particular, pay attention to silver prices.
Your upside isn’t usually big when something is already at all-time highs. Investors make their biggest returns by buying something when no one else wants to buy it, and selling that thing when everyone wants to buy it. Silver seems like one of those opportunities at the moment. It could be the next big trade in the making.
Silver is currently undervalued. The precious gray metal is ignored, and it has the potential to go past its all-time highs.
When it comes to silver, there’s one ratio that investors really need to pay attention to: the gold-to-silver ratio. For long-term readers of Lombardi Letter, this shouldn’t be a new concept. It has been mentioned here several times.
The gold-to-silver ratio essentially indicates how many ounces of silver it takes to buy one ounce of gold. This ratio is very powerful in telling us what the silver valuation is.
Look at the following chart. It plots the gold-to-silver ratio over the past 40 years.
Chart courtesy of Stockcharts.com
In general, the higher the gold-to-silver ratio, the more undervalued silver prices are.
However, there’s more to it.
Over the past 40 years, something interesting has been happening. Whenever the gold-to-silver ratio goes above 80, it eventually comes back down to around 45. Not too long ago, the ratio surged past 100. Currently, it’s on its way down, standing at 68.
Could this ratio go down to the 45 level again? If the 40-year historical pattern repeats itself, then yes. And if it does, massive rewards are ahead. Silver prices are already up by more than 100% since their lows in March 2020, but the upward move may not be done yet.
How High Will Silver Prices Need to Go?
Assuming that gold prices remain around $1,900 per ounce and don’t change whatsoever, silver prices would need to go to about $42.00 per ounce for the gold-to-silver ratio to hit around 45. This is roughly 50% above the current price of silver.
But it would be somewhat naive to think that gold prices will remain at their current level. Gold could be in the midst of making a run toward the highs it made in 2020 (around $2,100), if not higher.
Assuming gold prices hit $2,100 per ounce and the gold-to-silver ratio drops to 45, silver prices would have to surge to about $47.00 per ounce, which is 67% above the current prices. Mind you, silver at $47.00 would be awfully close to its all-time highs around $50.00.
If silver prices are able to break above $50.00 per ounce, investors could expect a rapid move to the upside.
Dear reader, don’t ignore silver. The gray precious metal could be presenting a solid opportunity. Pay attention to silver mining stocks as well. Some of them have gotten attention from investors, but many of them continue to sell for pennies on the dollar.