Commodities Precious Metals

Coming Boom and Bust in Stocks, Silver and Gold

With the spotlight on the continuing confrontation between Greece and the EU over its debt obligations and possible exit from the troubled union, a lot of uncertainties abound over its repercussions, not to mention ongoing tensions in Ukraine between Russia and the US and concerns over questionable and fragmented growth worldwide. In the backdrop of these situations,  one question springs to mind, if you were to invest today, would it be into the stock markets that are at all-time highs? Or would you look to precious metals at major lows?

 

To answer that, let’s go straight to the key message. Take a look at the gold to silver ratio over the last 25 years:

  • Red arrows mark the major lows in silver prices on the graph. They coincide, closely, with lows in the gold/silver ratio.
  • The low in November last year is circled.
  • It seems likely that a convincing low for silver was achieved then.

 

Now, take a look at the silver price on a log scale for the past 25 years below:

  • Prices are highly volatile (this is something we all know).
  • Prices are increasing quickly, which is difficult to appreciate unless you look at long term charts. Many obsess over the April 2011 peak and the 70% loss in price that followed, and assume the downtrend will continue forever. It won’t, because nothing ever does.
  • A number of higher lows in silver prices indicated by the green arrows.

 

Finally, look at the chart below of the ratio of S&P 500 to silver prices:

  • The ratio was recently at the lowest point in 9 years.
  • The ratio has fallen hard because the S&P has been levitated by $2 trillion of money printing and silver prices dropped.
  • Expect this ratio to move much higher over the next few years. Given that the gold/silver ratio and the spot price for silver are both low, we should expect substantially higher prices over the next few years.

 

Conclusions

  • Silver prices made a multi-year low last year.
  • Silver prices have increased steadily over the last 3 decades.
  • Gold and Silver will rally higher over the next few years, unless a deflationary depression (unlikely because central banks can print currencies indefinately) crushes all asset prices.
  • Gold and silver, at current prices, are an excellent opportunity.
  • There’s a time to keep your power dry and there’s a time to strike whilst the iron is hot. Now is the time.

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