Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don't Sell Your Silver Until It Hits $150

Commodities / Gold and Silver 2011 Sep 16, 2011 - 06:25 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleMartin Hutchinson writes: Silver prices had an exciting run-up in the year ending in April - they almost tripled, briefly touching $50 an ounce before settling back down to the low $30s.

Now, silver prices are back above $40 an ounce. That may have you feeling the urge to sell - but don't.


Resist the temptation to sell silver because this recovery is for real, and it has much further to go.

In fact, I anticipate silver prices will peak at $150 an ounce within the next 12-18 months.

The reason is simple: With central banks around the world pushing lax monetary policies, prices for all commodities - gold and silver in particular - will invariably rise.

We've already seen this happen with gold hitting a record high $1,923.70 an ounce on Sept. 7. And when gold goes higher, silver quickly follows.

That's reflected in something called the "gold/silver ratio," which shows how many ounces of silver it takes to buy one ounce of gold. Traditionally, this ratio acts as a price barometer for the two precious metals. And if you look at it right now, it's easy to see that $150 silver isn't far in the offing.

The Gold/Silver Ratio
Gold and silver prices traditionally move together because both are considered stores of value in inflationary times. And while we think of gold as the premier store of value, remembering the 19th century gold standard, other societies - notably the Spanish empire in the Americas, Imperial China and Mogul India - used the silver standard and are hence more focused on silver when inflation threatens.

In the 19th century and before, silver and gold prices maintained a fairly steady relationship to each other in a ratio of 16 to 1. Silver depreciated against gold in the 20th century. However, it also acquired industrial uses, which is something gold never did (the two metals are chemically very similar, but silver is much cheaper and hence more suitable for industrial uses).

The gold/silver ratio briefly approached 16 to 1 in the 1980 precious metals bubble (silver peaked at $50 per ounce, gold at $875) but then fell back beyond 50 to 1, with gold trading around $250 an ounce in the late 1990s, while silver was below $5 an ounce.

Gold was the first to take off after 2000. And by 2010, gold traded well above $1,000 an ounce while silver traded at $12-$14 an ounce - a ratio of close to 80 to 1. This was unsustainable, and it resulted in the price rise of 2010-11, which at its peak took silver to $50 an ounce and about a 30 to 1 ratio to the price of gold.

Going forward, we cannot expect the gold/silver price ratio to reach 16 to 1, as it almost did in 1980.

There are two reasons why.

First, the use of silver as an industrial metal falls off sharply when the price spikes. That frees up silver supplies while investment demand for gold soars. With a more elastic supply, you would expect silver's price peak to be dampened rather than exaggerated.

The second reason is that the 1980 silver price spike was caused by the Hunt Brothers' attempt to corner the silver market. No such attempt is visible today.

So the peak ratio of silver to gold is much more likely to reach something closer to 25 to 1.

The peak in gold is yet unknown, but for supply/demand reasons it seems likely to be above $2,500 an ounce - today's equivalent of the 1980 peak, adjusted for inflation - but less than $5,000 an ounce - the 1980 peak adjusted for growth in world gross domestic product (GDP) or money supply.

That would suggest a silver price peak between $100 and $200 per ounce, with $150 an ounce the most likely outcome.

Ultimately, the market won't turn bearish until global monetary policy tightens. In fact, it will probably be some months after policy is reversed before precious metals change course. That was the case in 1980, when peak prices for gold and silver lagged by more than three months Paul Volcker's first decisive move to tighten money supply.

With the November 2012 U.S. Presidential election looming large on the horizon, we probably have at least another year of rising prices. However, we may not have as much as two years.

So, all things considered, I'd keep any silver holdings at least until prices reached $150 an ounce.

Actions to Take: Keep your silver holdings at least until the white metal reaches $150 an ounce. If you don't already own silver here are a few ways to get in on the action.

The simplest way to buy silver is the iShares Silver Trust (NYSE: SLV), an exchange-traded fund (ETF) that invests in bullion directly.

Another way to play silver is through silver mining companies. These have lagged silver prices in the past year but can be expected to catch up as the earnings bonanza from higher prices manifests itself. You should look for companies that are increasing silver production and trading at a reasonable Price/Earnings (P/E) ratio.

I like Pan American Silver Corp. (NASDAQ: PAAS) with a P/E ratio of 17.25.

Hecla Mining Co. (NYSE: HL), which has a historic P/E ratio of 26 but a prospective P/E ratio of 12, is also attractive. So is Silver Standard Resources Inc. (Nasdaq: SSRI). Silver Standard has a historic P/E ratio of less than 5 and a prospective P/E ratio of 17, but that includes the profit from the sale of a mine, and rapidly expanding output as new mines open.

On the other hand, I'm not so taken with Coeur d'Alene Mines Corp. (NYSE: CDE) whose largest mine is in Bolivia, not a country I trust.

Of course, if you want the very best silver prospects, you'll have to sign up for Money Morning Private Briefing, which you can do by clicking here.

[Editor’s Note: Precious metals make for a great store of value, but in terms of a homerun investment you can do better. In fact, there’s a way that you can double your wealth in just one year. Better yet, it involves receiving a steady flow of hefty cash payments. Find out more by clicking here.]

Source :http://moneymorning.com/2011/09/16/dont-miss-out-as-silver-prices-surge-to-150-an-ounce/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jeff
18 Sep 11, 12:47
What's going on here?

Please read the article:

http://www.marketoracle.co.uk/Article30458.html

and crossreference it to this article. Extremely similar. But they seem to be two different people operating separate websites. What's going on here?


Post Comment

Only logged in users are allowed to post comments. Register/ Log in