August 30, 2019
At the current time of writing, gold and silver are suffering under a renewed attack, with the former losing $16.54 (1.08%) throughout the trading day and the latter down by $0.20 (1.11%).
Yet, this is not a time to despair, as both gold and silver are showing incredible resilience, adapting and adjusting to these difficult times, with gold holding solidly above the $1500 mark and silver smashing through the $18.00 per ounce level.
This smash lower came just as silver was rocketing towards the $19.00 mark, after quickly passing through its previous resistance levels in prior trading sessions.
The reasons for these metals moving higher are manifold, and they have been discussed at length on the Sprott Money blog. Most, if not all, of these contributing factors are still solidly in place.
The China / U.S. trade war is giving no indication that it will come to a close anytime soon, despite President Trump’s apparent softening in his approach over the past month. He has once again renewed his efforts and gone on the attack, stating that he regrets not raising tariffs higher on China.
The Feds are clearly not the only masters of doublespeak.
Obviously, this is an attempt to keep the markets chugging along while at the same time trying to force the Fed's hand in lowering rates even further.
I believe that ultimately the Federal Reserve will do just that, as they know that the global economy is not healthy. In fact, it is on the verge of a major recession.
Rates are going lower, and that means that both gold and silver will adjust accordingly, moving higher in lockstep with lower rates as investors seek the unique safety that only these metals can provide.
Despite believing that both gold and silver will ultimately go higher, I also believe that silver is destined to outshine gold in price gains. But why?
The answer is simple: the gold-to-silver ratio indicates that it is currently (very) underpriced by all historical standards.
As it stands right now, the gold-to-silver ratio is approximately 85:1, meaning that it takes 85 ounces of silver to buy 1 ounce of gold.
To find the gold-to-silver ratio, all you need to do is divide the current gold price by the current silver price.
Just for reference, here are some historical comparisons:
• The ratio of gold to silver in the earth's crust is 17.5:1
• In ancient Roman times, the gold-to-silver ratio was set at 12:1
• In 1792, the gold-to-silver ratio in the United States was fixed at 15:1 by law
• In 1803, France set this ratio at 15.5:1
Even if you disregard all of the above and use more recent numbers, the average gold-to-silver ratio over the past two decades still stands at 60:1, indicating that our current 85:1 ratio is horribly out of alignment and in need of a major adjustment.
This means that even if gold remained at its current price levels (something I don't believe will be the case), then silver would still have to move higher by roughly $7.00 per ounce just to reach the more recent, modern day averages.
However, it is very likely (given the fundamentals) that gold will move higher, as David Rosenberg, Gluskin Sheff’s chief economist, stated in a recent interview.
He believes that $3,000 gold is a very real possibility, which would mean that silver would need to move to roughly $35.00 per ounce just to maintain today’s current, historically out-of-whack ratio.
If silver outpaces gold, returning to a more healthy 60:1 gold-to-silver ratio, then this would put silver at $50.00 per ounce, nearing its all-time high.
Either way, we are looking at impressive gains if gold and silver continue down the current path they are on, heading incrementally higher as the months and years progress.
The printing presses are not slowing down, the Fed will in all likelihood lower rates (as the markets are demanding they do), and the 2020 elections are just over the horizon, bringing with them turmoil and chaos.
Gold and silver are destined to move higher. Their time to shine is now.