Today James Turk told King World News that the coming move in silver will be spectacular.
Due to unforeseen travel complications there will be no audio interviews this weekend, but they will resume next week! Thank you for your patience and loyalty. For now…
May 31 (King World News) – James Turk: There’s a lot going on across the board, Eric, but there are two markets in particular that I am watching closely.
The first is the gold/silver ratio, which has been fluctuating around 100 for two months now. In other words, it takes 100 ounces of silver to equal the dollar value of an ounce of gold. A ratio that high is rare, and while I know from experience that markets can do anything, a ratio that high is hard to explain.
Each year there is about 10-times more silver mined than gold. Plus the aboveground stock of silver is tiny compared to gold’s aboveground stock. So obviously it is the demand for silver – not its supply – that needs a deeper dive to explain the high ratio, and here my experience from the 1970s may be helpful.
There was a diverse group of various members back then called the Silver Users Association. Given that they used physical silver in their different operations, they all wanted to keep the silver price as low as possible. High prices would hurt their profitability.
From the US government’s point of view, low silver prices would help with its story that inflation was under control. It wasn’t of course as people increasingly realised over time until a “Tipping Point” was reached at the end of that decade.
Then two things happened. The price manipulators were forced to cover their short positions to minimise their losses as the silver price rose and then eventually soared. Also, there was a growing recognition that physical silver was a good gold substitute. In other words, because the gold/silver ratio was high back then, silver was seen as the better value for storing purchasing power outside the banking system and away from the inflationists in government and the Federal Reserve.
In August 1979 the gold/silver ratio was 33, a level then considered to be high. At the peak of precious metal prices in January 1980, the soaring silver price sent the ratio down to 16, the normal historical rate when silver was used in coinage. It marked a significant outperformance of silver compared to gold and was even more remarkable when considering it happened over only 5 months.
A similar event took place after the 2008 financial collapse. The ratio dropped from 68 in August 2010 to 32 in April 2011. In that 9-month period, silver soared to $50, it’s January 1980 high and this “Tipping Point” was driven by the same factors as those in the 1970s I mention above.
So unless something fundamental has changed with silver’s supply/demand components for which I am not aware, silver in my view is way undervalued. So will there be another “Tipping Point” from money rushing into a very small silver market to acquire a diminishing supply of physical metal?
Time will tell, but for now I’m watching the ratio to see if it begins falling. A break below, say, 95 could be an early indication that the precious metals are ready for another run higher with silver leading the way, which has direct bearing on the second market I am watching.
It’s the US dollar. Look at what this chart of the US Dollar Index is telling us.
Note how the dollar started rising in anticipation that the Biden administration was ending, and continued to rise during the initial weeks after President Trump assumed office. However, in the absence of any concrete steps taken or proposed to end the reckless federal spending and gargantuan budget deficits, and also the severity of the battles he has been fighting showing how hard it is to reduce wasteful spending, the dollar started trending lower. It’s now looking over the edge of the cliff at new lows on this index.
So as I see it, another “Tipping Point” like the 1970s is looming that would send silver significantly higher over just a few months, outperforming gold. Timing and causes are impossible to predict, but the next “Tipping Point” could result from the dollar breaking into new low ground. It would be the result of money moving into physical silver by investors seeking an alternative safe haven for their purchasing power.
Another possible trigger is covered in an article that Alasdair wrote a couple of days ago about the debt bubble bursting. He made an insightful and important point.
Most people view inflation only as a price problem, namely the continual erosion of the dollar’s purchasing power means constantly rising prices over time. They overlook that inflation can also become a currency problem, which is what is about to happen because of the federal government’s massive debt load is increasing faster than the means to fund it.
Treasury Secretary Scott Bessent has made this point a number of times. He doesn’t call it a debt trap but has repeatedly said that the U.S. economy needs to grow faster than the national debt. A growing economy means a growing tax take. But if taxes don’t grow faster than spending and the national debt, the Treasury will turn to the Federal Reserve and the banking system to “print” more currency, which not only causes inflation but negatively impacts the federal governments credit rating, which has now lost its triple-A rating.
So for now we wait to see. Let the dollar and silver tell us their story over the days and weeks ahead, but either a break below 98 on the index or above $35 per ounce might be the trigger. It has been a key resistance level. There’s no Silver Users Association today, but the same parties with a vested interest in low silver prices continue to operate.
So I’m watching to see if silver breaks above $35 and the gold/silver ratio starts falling toward normal levels. When the precious metals begin moving higher again, it could be spectacular for silver like it has in the past when a high gold/silver ratio shows it is so undervalued relative to gold.
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