Silver just had a historic upside breakout above $32 and as the price of gold surges near $2,450, but take a look at this…
May 20 (King World News) – James Turk: There has been some manic buying of the precious metals by the shorts covering some of their positions, Eric, but that’s not the reason gold and silver are heading higher. Gold and silver are climbing higher because they are undervalued, particularly silver. And because they are undervalued we can reasonably expect higher prices in the future. Any short squeeze that develops will just add more buying power to this precious metal bull market.
I recommend that everybody listen to your interview with Pierre Lassonde to hear his gold price projections, with which I agree.
As bullish as I am about gold, I’m even more bullish about silver. In other words, silver will outperform gold, which is what it has been doing the past few weeks.
The gold/silver ratio was near record levels when it was in the 90s and has now fallen to 78 ounces of silver to one ounce of gold. Nevertheless, by historical measures the ratio is still way up there. It fell to 30 in the 2008-2011 bull market, and there is no reason why it can’t fall to that level again, or maybe even toward the 16 level that prevailed when silver circulated as coinage.
The ratio may go even lower because when viewed by weight, only about 10-times more silver is mined each year than gold. It’s a key difference between gold and silver and highlights why the ratio has been so high.
Silver these days is mainly an industrial metal. In contrast, gold’s demand is almost entirely from its monetary usefulness, with little industrial usefulness in part because of its high price. Even though silver no longer circulates as coins, it hasn’t lost its monetary usefulness.
Silver is a gold substitute in the sense that when you own physical silver, you achieve the same outcome as owning physical gold. Both are a monetary asset outside the banking system without counterparty risk and both preserve purchasing power, but with silver you get the potential outperformance if the ratio falls.
Importantly, silver’s monetary demand is only now starting to kick in. This new demand will continue I expect, and if I’m right, it will drive the silver price higher more rapidly than gold, resulting in a falling gold/silver ratio.
I suspect that silver’s industrial demand won’t decline much, if at all, with higher prices. There is a growing demand for silver in solar applications, and there is no practical substitute for silver’s usefulness in solar.
The key point, Eric, is that the precious metals accumulation strategy we have discussed so many times over the years is paying off, and will continue to do so because the future for the dollar and all other fiat currencies looks bleak. Consequently, it’s bright future for physical gold and silver. And here’s how bright I think the future might be.
I’d like to start with the following chart, with which KWN viewers are now familiar. It’s the silver chart of spot prices at their weekly close in New York.
Weekly Chart Shows Silver’s Powerful Upside Breakout From Reverse Head & Shoulders Pattern
It’s a breakout from the huge base formed as silver was being accumulated. As I often say, sometimes history repeats, so look at this chart of the monthly close of spot silver going back twenty years, prepared on a log scale.
20 Year Monthly Chart Also Shows Silver’s Upside Breakout From A Reverse Head & Shoulders Pattern
I’ve drawn a red line to delineate the 2008-2010 accumulation pattern. It’s similar to the base from which silver is now breaking out.
Look what happened back in 2010 after the breakout. Silver rose about 220% in seven months. If history repeats, silver would reach $70 or so by the end of this year. But let’s look at its price potential another way.
Let’s assume that gold is going to $3000 and at the same time, the gold/silver ratio continues falling to reach 30. Those assumptions and the math put silver at $100.
Will it happen? Frankly, given the bullish fundamentals and an even stronger and bigger base this time around, my guess is that price will be exceeded, probably not by the end of this year, but not too long after that.
Billionaire Lassonde Says Gold Headed Thousands Of Dollars Higher
To listen to billionaire Pierre Lassonde discuss what he is buying right now as well as the wild trading he expects to see in the gold and silver markets CLICK HERE OR ON THE IMAGE BELOW.
To listen to Alasdair Macleod discuss this week’s explosive upside action in gold, silver and mining shares and what to expect next CLICK HERE OR ON THE IMAGE BELOW.
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