Silver To $300

Summary

• In the 1970s' bull market, silver was up 3,700%. Today, the fundamental and technical picture could not be more bullish.
• Global silver demand is forecast to nearly double supply growth this year, thanks to investment and industrial drivers.
• Silver remains historically cheap on a nominal and inflation adjusted basis and has much, much higher to run.

Photo by Bet_Noire/iStock via Getty Images

I know this might sound ridiculous to some, but I think silver could reach $300. No, I haven't lost my mind. After all, it's a metal that's known for massive rallies.

You see, when silver went through its 1970s' bull market, it started from a low of $1.31 in October 1971. By the time it reached its peak in 1980, silver had run all the way up to $49. That was a 37x return.

If we consider that silver was priced at $4.20 in late 2001, a 37x return would take it to about $155. However, I think this bull market could be an order of magnitude larger for a number of reasons, the main ones being debt, credit and money printing.

As a result, I think silver's ultimate peak could be $300, and I won't rule out possibly even higher.

Bullish Silver Fundamentals

Most developed and many developing nations have been in multi-year or even multi-decade deficit scenarios. This now looks to have become a permanent state, at least until we reach some sort of global financial reset.

The Institute of International Finance explains how the COVID-19 pandemic response added $24 trillion to the global debt mountain last year, to reach a new all-time record high of $281 trillion.

And interest rates being maintained at 5,000-year lows will only encourage more debt. Couple that with many countries borrowing to meet interest payments, and central banks soaking up much of that new sovereign debt, and inflation havens like precious metals gain strong appeal.

Silver in particular has the added benefit of 50% of its demand being industrial. With unprecedented economic stimulus programs, and many favoring green energy, silver is uniquely positioned to profit. What's more, according to Metals Focus, silver supply was down 4% in 2020 by 42M ozs. According to the Silver Institute, total supply will rise by 8% this year, though total demand will rise nearly twice as much, by 15%, led by industrial, jewelry and physical demand.

So the fundamental side of silver demand is looking strong, but the technical side is also very bullish.

Bullish Silver Technicals

Let's consider the gold-silver ratio.

As a quick refresher, the gold-silver ratio is calculated by simply dividing the spot price for one gold ounce by the spot price of one silver ounce. That's it. Naturally the higher the ratio, the more silver ounces are needed to buy one gold ounce, and vice versa. The most bullish scenario is when the ratio is falling from a high level, ideally from above 80, and the silver price is rising.

Here's a chart of the gold-silver ratio during the 1970s' silver bull market.

To me it's very intriguing to note how recessions, which are the grey vertical bars, tended to mark troughs and/or peaks in the ratio. What's also interesting is that when silver reached its peak in 1980, the gold-silver ratio ultimately bottomed around the same time at a level near 15, which was below the starting point near 20.

Let's now move to the current silver bull market which I believe began in 2001. The following chart shows us silver prices since 2000, not adjusted for inflation.

Of course, silver had a tremendous run from $4.20 in 2001 to its 2011 peak at $49. It then corrected until late 2015, then moved sideways until bottoming near $12 last year in March. It had a tremendous move up to $30 within just 5 months and has been mostly consolidating since.

Now let's examine the gold-silver ratio action since 2001.

Again we see peaks and troughs tend to occur (though not exclusively) around recessions (grey bars). At silver's peak in 2011, the ratio bottomed near 33. It then rose almost constantly up to its all-time peak last March at 125, then fell dramatically to its current level around 67, as silver started to significantly outpace gold. Consider that we know from history silver always outperforms gold in precious metals bull markets. So the current action is particularly exciting for silver.

Silver Targets

But what does it all mean for how high the silver price can go? Of course, no one knows for sure. But there are some indicators worth examining for clues and suggestions.

I believe the ratio will ultimately reach a low near 15. And given the inflationary path we're on, I think gold could peak at $5,000 per ounce. That's just 2.5 times last August's peak near $2,000. In fact, I think there's even a decent chance gold could reach $10,000, which is just 5 times last August's peak. But if we stick with $5,000, and an ultimate bottom in the gold-silver ratio of 15, we get ($5,000/15) $333 per ounce of silver.

Let's look at silver price targets from another angle: inflation.

If we consider inflation-adjusted silver prices going back to 1970, we see that the peak reached in 1980 was actually $120/ounce in today's dollars, and that's using government sanctioned inflation statistics, which tend to be well below what we experience in everyday life.

Considering the old way of calculating inflation, which the U.S. abandoned decades ago and I reference below from Shadowstats.com, a realistic inflation rate would have averaged 7%-8% since 1980 (triple official inflation), which would mean an equivalent silver price of $240-$360 at the 1980 peak.

My gold-silver ratio target for silver of $333 is comfortably within the range of $240-$360. If we take the mid-way point between $240 and $360, we get $300. I think that's as good an estimate as any of where silver can peak in its current bull market.

On this basis, the silver price would need to be up by more than 10x from current levels to reach its ultimate high. Imagine for a moment, if silver were to soar tenfold from here, what the silver producers' and silver explorers' share prices would do. It's not difficult to expect simply spectacular returns. Which is exactly why it's so attractive to allocate to this space, while being diversified across several stocks, as it's impossible to know which will do best. Still, odds are very good that if silver goes up by a factor of 10, the average silver stock should easily double that, and be up by a factor of 20, while the most successful juniors could gain 50x or more. That would simply be a repeat of previous bull markets.

Larger silver producers and royalty companies should be seen as core positions to be held for the long term. The more junior explorers should be treated more cautiously as speculations, on which to take profits when they materialize. Selling half of one's position on a double would be especially sensible.

In any case, I believe it remains early days for silver and silver stocks. I expect to see much higher prices ahead in the metal and the equities. And in my view the current bout of weakness is an opportunity to buy or add to positions in this space. Remember, at $26 silver is still nearly 50% below its all-time nominal high, while gold is just 10% below its all-time nominal high. Silver is clearly the better relative bargain.

I think silver is currently at or very close to its bottom, but that its ultimate peak could well be in the $300 range.

Either way, silver is headed much, much higher.

Analyst’s Disclosure: I am/we are long PSLV, SIL, SILJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[WaveRider007]

Finally the resistance is fading. Just flying through air pockets now.

[WaveRider007]

Price deceleration? Stabilizing? Still shaking the tree, patience.

[Miners to the Moon]

@WaveRider007, like WPM, SILJ, PAAS, HL here - I own each.

[WaveRider007]

Time to load up here.

[WaveRider007]

The problem is the dollar peg and its status as global reserve currency. China and Russia are moving investment from treasury dollars as they increase Euro reserves and begin avoiding SWIFT and using SPFS and CIPS. This time China will not strengthen the dollar and that is the problem that physical commodities will be implemented more as reserves. The global treasury market of the US is being suffocated. If someone's foot is in the door, you cut off the toes first.

[ShullBit]

What about Platin ?

[6228371]

@Hellfire4U

"What about Platin ?"

Platinum is probably the platinum group metal with the least near term appreciation potential. Palladium, rhodium, iridium, anf ruthenium, are much more interesting. The best way to play all of these, including platinum, is with the largest platinum miner, SBSW. SBSW shares are currently trading at under 4 times 2021 expected earnings. SBSW has more cash than debt, and pays high dividends. They are also repurchasing up to 5% of the shares outstanding.

www.marketwatch.com/...

[RalfG]

I think it is a fundamental error to refer to the 1980 bull market as it was highly manipulated. The 50 USD say exactly nothing in my opinion. Nevertheless, I believe silver will rise enourmously. However, kind regards from Germany.

[6228371]

@RalfG

"I think it is a fundamental error to refer to the 1980 bull market as it was highly manipulated. "

LOL! The silver price has been highly manipulated for over 100 years.

[RalfG]

@6228371 Sorry, every market is sometimes manipulated in some way, but no market is continuously manipulated in one direction. You are only repeating some nonsense conspiracy theories you heard anywhere. Regards!

[Wallstreet_wolf]

while nowadays it seems be very unrealistic that silver will more than double or tripple from now....if the train runs.....look at Dogecoin! I dont want to favour such an "surreal" imaginary unuseful item be priced a few thousand times higher than what it should be......a real precious metal....(look Rhodium) can be climbing higher and higher.....in a short timeframe.....until silver mines catch up with supply......to get a new silver mine online can take years....
for myself.....silver is beside platinum the best metal to accumulate at home....taxless.....hidden.....

[almoni]

@Wallstreet_wolf You may be right - time will tell.
but platinum disappoints year after year.
not growing.
say it will grow it is a question of when. ???

[not_sure_68]

@almoni When is always the question. The answer is...when the market manipulation of metals...or a particular metal is broken. Palladium broke free several years back and rhodium "futures" are not traded on the crimex...so naturally those two PMGs have valid price discovery mechanisms...unlike gold, silver, and platinum.

[almoni]

@not_sure_68
1- I am not interested in futures, they do not exist for me
2
metals to me a coin or bullion
3
Banks sell rhodium coins and bullion - you can google it
4

Unfortunately, I do not understand your opinion on gold and silver - are you buying or selling?
I trade а chart - the price includes everything as we know.
we are not numismatists and we need like a shark new and new deals,
not lengthy articles and arguments that are so frequent here on the site

so I like short trade views rather than vague articles -

[lyingtoourselves]

After investing in silver over ten years, I'm more of the now is a good time to trade silver for gold, and wow we are down to the 60's again! Maybe the copper mining cycle will ramp up and silver will be plentiful. Even physical demand in India finally outpaced the U.S. a few years ago when silver was cheap, but they are very smart about acquiring more gold and just trade it for gold later. Silver languished at 15-20 for years, falling as low as 13 last April. Some of the guys were trading their silver for platinum when it was under 1000.

[Wallstreet_wolf]

@lyingtoourselves well Silver has still a long way to go.....even longer the way for platinum......gold can go for 2400$.....at 8 times more available on earth silver can catch up to 300....platinum very rare and mostly only found in SA....if there is a boom it can become so rare.....priceless...5000$---even 50.000$ per oz.....

[Cognoscente]

Nothing is impossible. That is why I allocated part of my portfolio into the PM.
But keep in mind that PM prices are closely correlated with real yields, rather than inflation levels.

[not_sure_68]

@mluogang Indeed. This is why it's important to recognize that the fed/treasury will not...cannot allow yields to rise. To do so would allow the debt market to implode. This will not happen unless and until everything else has already been sacrificed...IE equity markets and the dollar itself.

We're looking at an environment where the fed is forced to inflate and unable to take the steps necessary to arrest said inflation due to debt levels. Never has there been such a bullish environment for precious metals.

[j-dub]

The morning gold hits $10,000 an ounce is the exact same morning many of us won't want to wake up to.

[Nick007]

@j-dub
I don't really have a dog in this fight, and the tendency of precious metal investors to see hyperinflation around every corner is kind of ridiculous -- but it's possible to go too far in the other direction too. My understanding is that in 1980 the inflation-adjusted price of gold was over $20,000/ounce, which didn't lead to the world ending. In a time when something like Dogecoin has any price at all, I wouldn't look on $10,000/ounce for gold as absurd.

[PennyPlanSupporter]

@Nick007 in today's dollars, the highest ever price of gold was a bit over $2,500 per ounce (1980).

[j-dub]

@Nick007 If the dollar is historically worth about half of itself every 20 years than a 1980 high of $800 would put that at a current inflation adjusted price of $3200.

[squashy]

If you brought back people like the Hunt Brothers who tried to corner the market in silver with disastrous effect after silver plunged from $49 to $10 an ounce, then perhaps it could get as high as $300 an ounce, for a month or so

[almoni]

@squashy
you are right - it makes me sad and funny to realize that I have seen the price of silver $8

Today I would build a huge ladder and sell every three dollars, reducing the position .
But history knows no subjunctive mood

[GB77]

The author forgot mentioning that the silver spike from 6$ to $49 in 1979-1980 was due to a market manipulation attempt. It was a failed attempt in the end, thus silver plunged all the way back to $10.

[almoni]

@GB77
It was not an attempt, but a manipulation. the attempt succeeded.

[PalmDesertRat]

it would be useful to know what is happening with the cost of producing silver. that's what sets the bottom

[GB77]

@PalmDesertRat Technically speaking, there is no definitive production cost of silver as silver is a by-product of gold and copper mining. This also means that copper and gold prices do affect silver supply.

[Jim Wallingford]

I won't say never, but it won't hit $300 in my lifetime unless we enter a Zimbabwe style inflation cycle. The $50 print of 40 years ago suggests it could top $100 today if "animal spirits" multiply.
Your time frame for this move?

[John Manfreda]

I think Silver will go to $1K, the question is when, not if. Three hundred dollar Silver will take a long time to develop.

[edaskew]

I'm a silver bull as well, but I don't see the gold/silver ratio ever getting to 15 again. Sure, there are industrial demands for metals, but, regardless, the demand that drives silver, and gold, is investment demand. That demand is always going to be higher for gold. Lots of reasons for that. For one, VAT. Overseas, gold is treated as a currency, and you can walk into a bank and buy gold. No VAT is owed. Silver doesn't have that status. You have to pay VAT on silver transactions. Also, there's the portability issue. A 1 kg gold bar is a very small thing, not bigger than a cellphone. You can slip it into your pocket and walk around with it, no one the wiser. Today that little bar has a value of $58,100. The same value in silver weighs 148 lbs. I can tell you as someone who had to move that amount of silver during the pandemic, in a somewhat urgent situation, there was no way to do it and not have a lot of people see me and realize I had something very heavy and valuable. I felt very exposed at the time. So, for these reasons gold is worth far more than it's relative scarcity over silver.

[thomashogan640]

@edaskew retail investor is tiny most silver is used for industry not investment

[edaskew]

@thomashogan640 Why does silver go up when gold goes up?

[almoni]

@edaskew
I understand you, but I want to make it clear that they also take VAT for gold.
\physical metal .\

in Europe, for example, there are no transactions without VAT unfortunately.

[Alex62]

Peter, I see something strange on your nice picture at the beginning. How can some piece of silver of 1000g be 10 times bigger as another piece of silver of 1 kilo?

[spectormike]

@Alex62 somebody's computer generated picture should have the bigger bar labeled as 100 oz

[Mevo]

@Alex62 Ah Americans. They don't know 1 kilo = 1000g. The metric system is viewed as some kind of sorcery by some of them. When it's totally the other way around.

[Gadzman_33]

If I had a nickel for all of these wild 😛 price forecasts , then I wouldn't need to be holding this physical Silver since the 1990s !!!

[PennyPlanSupporter]

Silver will hit $300 but only when a cheeseburger costs $40.

[fanopack]

@DeepValueLover That still makes silver a buy, right?

[Alexmaniam]

@fanopack Nay, stack up on cheeseburgers ;)

[PennyPlanSupporter]

@fanopack ...or McDonald's $MCD

[pmgminer]

Sure would like to think your right. I`m sitting on 50 oz`s as i type this. I know a coin dealer who`s sitting on 5, one hundred oz bars as of last week. Maybe...