On the heels of the price of gold surging near the $2,100 level on Friday, today James Turk told King World News that what is happening in the silver market is extraordinary.
Gold & Silver
March 4 (King World News) – James Turk: You will recall, Eric, a couple of weeks ago I mentioned my near-term targets of $2080 and $26 for gold and silver. The silver target was based on my expectation that the Gold/Silver ratio would fall to 80.
My gold target has been met. It ended at $2086 on Friday’s close. The good news is that gold looks ready to continue climbing much higher, but the gold/silver ratio is still lagging.
The gold/silver ratio did drop briefly to 86, but is again back at 90. Rather than silver leading the advance as I expected, so far gold is pulling silver higher, but I still expect this relationship to change. When the monetary demand for silver kicks in, silver will begin leading the advance, and the ratio will fall to more normal levels…
This silver explorer recently did a huge transaction with a $4.5 billion market cap producer CLICK HERE OR ON THE IMAGE BELOW TO LEARN MORE.
SILVER: A Twin Threat
To explain this point, silver has usefulness both as an industrial metal and a monetary metal. These two demands contrast to gold, the value of which relies almost entirely on its monetary demand.
Demand for gold in industry is insignificant, and most gold jewellery is purchased as a form of savings. While people in the West prefer gold coins and bars, high-karat gold jewellery is the customary way to save in the rest of the world.
The Swing Factor
Right now silver is trading on the basis of its industrial demand. There is of course ongoing monetary demand for it, as silver coins and bars are being purchased all the time. But there are about 900 million ounces mined each year that needs to be absorbed, and this weight is more silver than is needed annually in its industrial applications. So silver’s monetary demand is the swing factor in determining the silver price, and here’s the key point.
From a monetary perspective, 90 ounces of silver provide the same usefulness as one ounce of gold. Both metals are tangible assets that hold your purchasing power without counterparty risk because they are money outside the banking system. The purchasing power conveyed in these two precious metals is not contingent on some bank’s financial capacity or its willingness to deliver your purchasing power to you when you need it.
Given all the negative news impacting the dollar and that the banking system remains shaky, the demand for dollars will continue to decline. As a result, more purchasing power will flow out of the dollar into the precious metals as well as the shares of the companies that mine them.
So my expectation for higher silver prices and a falling ratio rests on a key premise. Because silver is so undervalued relative to gold, monetary demand for silver will surge, just like it did in the inflationary 1970s when the gold/silver ratio fell to 16. Or in 2011 when the ratio reached 30 because the monetary system was still reeling from the 2008 financial crisis.
It’s Worth Noting…
It’s worth noting that there is about 10-times more silver mined each year than gold. Also, I understand from geologists that there is about 10-times more silver in the earth’s crust than gold. So the current ratio of 90 shows how undervalued silver is compared to gold.
Markets don’t like misvalued assets. Overvalued assets are sold, and undervalued assets are bought. For silver we can see the buying and accumulation of it in this chart, which we have discussed many times as the pattern developed.
Silver’s Massive Reverse Head & Shoulders Pattern Coiling To Unleash On The Upside
Silver is forming this huge head-and-shoulders reversal pattern because it is being accumulated. Then there is the break-out above the short-term downtrend I mentioned a couple of weeks ago.
We’ll soon learn whether these patterns are as significant as I think they are and if silver is ready to jump to my $26 target, just like it has done many times before as we can see on this chart.
King World News note: For those accumulating physical silver, continue to dollar cost average. Do not try to get cute and time these markets. For those who have been long suffering in the mining and exploration stocks, your time may finally be at hand if the price of gold can hurdle $2,100.
To listen to Alasdair Macleod discuss the huge trading on Friday that lifted the gold price close to the $2,100 level CLICK HERE OR ON THE IMAGE BELOW.
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