Regular readers know we’re likely still in the early stages of a long bull market in precious metals.
As this situation plays out in the years ahead, silver will likely prove to be a valuable asset…
For one thing, gold hit its all-time high last month. But silver still has a long way to go before it reaches its all-time high of about $50 per ounce. It would need to more than double from its current price.
I’m talking about one of our favorite metrics – the gold-to-silver ratio. This ratio is simply the number of ounces of silver it would take to buy an ounce of gold at any given time.
A gold-to-silver ratio of 80 is considered high. Historically, the ratio tends to pull back after hitting that level.
Silver also tends to rise faster than gold during boom times. So in precious metals bull markets, this ratio tends to fall quickly as silver outperforms.
But since silver trailed behind gold for much of the past two years, the ratio stretched higher than ever before. It eventually reached an all-time high of about 125 in mid-March.
Take a look at the following chart. As you can see, the gold-to-silver ratio has fallen dramatically in recent weeks due to silver’s surge. It plunged to about 71, and now sits just around the key threshold of 80 today…
Now, look at what happened to the gold-to-silver ratio during the last bull market in precious metals that ended in 2011… The ratio dropped all the way to around 35.
This gives us an idea of our potential upside. Even if gold stayed around $1,900 per ounce, silver would need to rise to an all-time high of $54 per ounce for the ratio to fall to 35 again. The ratio was even lower (at 14) during the bull market in 1980… To reach that level again, silver would need to hit $135.
And of course, we don’t expect gold to stay at its current price. We believe the prices of both metals will continue moving higher in the coming years.
As the pandemic lingers into the fall, much of the nation remains locked down. Nearly 30 million Americans are collecting some form of unemployment assistance today – and the stimulus checks are starting to run out.
Online-reviews service Yelp (YELP) recently reported that more than half of the restaurants that closed during the pandemic won’t ever reopen. Airline travel remains at less than 25% of pre-pandemic levels. Major sports leagues are still playing without fans, for the most part. And due to COVID-19 fears, most kids in the U.S. won’t head back into their classrooms this fall.
We can’t even begin to estimate the long-term economic fallout from COVID-19. Even if things get back to a “new” normal, the ripple effects of the shutdown could last for years.
Precious metals are built for crises such as these. And as the bull market in the sector plays out, you’ll want to own silver today.
Good investing,
— Bill Shaw
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Source: Daily Wealth