Silver Is Shaping Up To Be The Best Precious Metal Play Of The Decade

May 26, 2015 11:29 AM ETSLV, PAAS, SSRI, PSLV, SIVR, PAAS:CA, PSLV:CA203 Comments
Caiman Valores profile picture
Caiman Valores
2.77K Followers

Summary

  • Despite being caught in a long-term bear market, silver offers considerable long-term potential upside.
  • The gold-to-silver ratio indicates that silver is significantly undervalued in comparison to gold.
  • Supply and demand fundamentals point to an ongoing physical supply deficit that will boost prices.
  • Increasing industrial demand, particularly for solar and hi-tech applications, will exacerbate the supply shortage, driving prices higher.

Silver has been trapped in a severe bear market for the last three years, with it still down by a massive 61% from the ten-year high of $48.70 per ounce hit in April 2011. Recently, silver has rallied, recovering by almost 11% from its 52 week low to now be trading at around $17 per ounce. While this rally increasingly appears to be short-lived, there are a number of catalysts that indicate a favorable long-term outlook for silver.

For these reasons I believe it is significantly undervalued and poised for a massive rally, with its price set to climb higher over the long term, offering investors far better potential returns than gold or other precious metals.

Gold-to-silver ratio

One of the key measures of whether silver is undervalued or overvalued in comparison to gold is the gold-to-silver ratio. This ratio measures the correlation between silver and gold prices, allowing investors to determine when it is the optimal time to invest in silver in preference to gold. The relationship between gold and silver prices, as well as the gold-to-silver ratio for the last two decades, is illustrated below.

Source: Perth Mint.

The gold to silver ratio has widened considerably in recent years. At the height of the gold bull market which peaked in 2011, 38 ounces of silver bought one ounce of gold. This has now more than doubled, with 71 ounces of silver needed to buy an ounce of gold.

The current ratio is also well above the historical average, which over the last century has required somewhere between 50 to 60 ounces of silver to purchase one ounce of gold. Over the last two decades the ratio has averaged 60 ounces of silver to one ounce of gold. While the ratio of silver to gold in the Earth's crust is estimated to

This article was written by

Caiman Valores profile picture
2.77K Followers
Investment specialist natural resources & precious metals. Focus on geopolitical & economic risk. Emphasis on Latin America. MBL USyd MA Pol Sci UNSW.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author holds physical silver bullion and collectable silver coins.

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