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Gold Bulls Should be Raging Silver Bulls

Commentaries & Views

I’m extremely bullish on precious metals over the mid- to long-term. As for 2019, I can’t tell you what will happen—and I don’t think anyone else really knows either.

But I will tell you this: if gold leaps, there’s an excellent chance that silver will go through the roof.

Let me tell you why. As you may recall, silver experienced its greatest leaps since the end of the US gold standard in 1980 and 2011.

But while gold and silver move together, they don’t always move in lockstep. The 2011 surge in silver prices was earlier and greater than the one for gold at that time.

Let’s look at this a different way. The chart below shows points for daily closes, with silver prices on the vertical axis and gold on the horizontal axis. The expression of the two prices in each point shows the data as a ratio, often known as the gold-silver ratio (GSR). The grey points show a low GSW (relatively higher silver prices), and the gold show a high GSR (relatively low silver prices).

Several things stand out:

  • The overall relationship is very clear and very, very strong. Higher gold prices mean higher silver prices.
  • Silver prices are near historic lows for the current gold-price environment.
  • There are times when silver rises much faster than gold (“goes nuts” is a fair way to put it). The big trail of dots departing from the main trend above the $500 gold price on the chart is the 1980 surge. The big trail above $1,500 is the early 2011 surge. There are other trails departing from the main trend on the chart. These show smaller, but still significant mini-trends of silver outperforming gold.

What causes these silver manias is not easy to define. Market conditions were quite different in 1980 and 2011. But perception of a tighter silver market at times when gold is rising seems to be a trigger.

Remember that most silver is mined as a by-product of large mines producing industrial metals. It’s mostly copper, but also lead and zinc. So there can be times when silver production is falling even as precious metals prices are rising. That makes for a tighter market.

But even when supply is stable, rising demand—whether it’s the Hunt brothers trying to corner the market in 1980 or the world going solar now—can also signal a tighter silver market.

I’m not saying that this will happen in 2019—but it could.

The other thing to remember is that silver is both a precious (monetary) metal and an industrial commodity. Most of the silver mined is used in industrial applications, with the most rapid growth in demand coming from the solar-panel makers. It’s also used in many other electronics applications, most of which are growing rapidly.

Higher oil prices, the shift into electric cars, government incentives, and popular culture all contribute to rising silver demand—and will for many years to come.

This brings me to my reasons for being a silver bug in 2019:

  • Our world is as crazy and dangerous as ever, which is bullish for safe-haven assets like gold and silver.
  • If the trade war ends, as Trump has signaled, it’s bullish for industrial minerals like silver.
  • The shift into the new energy paradigm is bullish for energy minerals like silver.
  • There’s bonus potential for silver to “go nuts” and leap at any time.

Whether 2019 is the year precious metals break out or not, I’d rather be early than late. With Tax Loss Season putting many good companies on sale, I’m actively looking to make new investments in the silver space now.

To find out more about the resource trends I’m tracking, please visit www.IndependentSpeculator.com and sign up for my free, no-spam weekly digest. I’ll do my best to deliver value for you.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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