These Indicators Are Undeniable: Silver Bull Market Ahead
In order to gauge how silver is priced relative to gold, one useful tool is the gold-to-silver ratio.
We calculate this indicator by simply dividing the gold price by the silver price which, right now, yields about 67. In simple terms, that means right now an ounce of gold will buy roughly 67 ounces of silver.
Historically, that ratio has been closer to about 16. On that basis, silver is still very cheap.
If we look at the gold-to-silver ratio since the current bull market began in 2001, it averaged closer to 55 before the 2008 financial crisis and stock market panic.
I believe that, as this bull market progresses, the gold/silver ratio will not only return to its pre-Panic average of 55, but will ultimately peak somewhere closer to 20.
What does that mean right now?
Well, if gold were to stay put at $1,300, and the ratio returned to 55, then silver would climb by about 20% to around $23.50/ounce.
But there are several other drivers, in addition to a reversion to the mean of the gold/silver ratio, which are likely to help drive silver a lot higher in the months and years ahead.
The price of silver may be flat on a year-to-date basis, but that's not the case for silver miners.
If we use the Global X Silver Miners ETF (NYSE Arca: SIL) as a proxy, the miners are in fact up 25% this year by comparison. That's some outperformance, and it speaks to a burgeoning interest in this sector.
We've also seen a bullish technical signal back in early July. That's when SIL completed a golden cross, with its 50-day moving average crossing up above its 200-day moving average as you can see in the chart at right.
And even though the silver price is flat on the year so far, investor interest is strong. Silver ETFs backed by physical silver added 7 million ounces in the first half of 2014.
Demand Is Up in All Corners of the Market
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