Silver is up again in Wednesday trading, rising by nearly 1% to $17.50 per ounce. The price of gold has risen by less than 0.25% today. This has become a consistent market pattern over the past several weeks.
Many markets exhibit consistent long-term patterns in trading. Nowhere is this more apparent than the precious metals sector.
In any real rally in precious metals, two factors are always on display.
- Gold and silver mining stocks significantly outperform the metals themselves
- Silver grossly outperforms gold
The explosive rally in precious metals that was triggered by our last “financial crisis” illustrates this perfectly.
From late 2008 to the Spring of 2011, precious metals markets soared.
The price of gold went from ~$760 per ounce to an intraday high above $1,900 per ounce on September 5, 2011. Roughly a 2 ½ times multiple.
Gold mining stocks did much better. The
VanEck Vectors Gold Miners ETF (US:GDX), a popular index of senior gold mining companies, rose by a factor of greater than three.
Mid-tier gold producers generally rose much further. Meanwhile, ten-baggers were commonplace among junior gold mining stocks.
Then there was the silver market.
Silver ran from its 2008 low of ~$8 per ounce to above $49 per ounce in the Spring of 2011. A six-bagger. More than twice as large a move as in the gold market.
It’s difficult to generalize about silver mining stocks – since there are so few of them.
The gross underpricing of silver that began in the 1990’s has caused the gold/silver price ratio to explode to unprecedented highs. It also exterminated more than 90% of the global silver mining industry.
Today, primary silver producers are almost as rare as Big Banks that haven’t been convicted of a serious felony.
In the last big rally,
First Majestic Silver (US:AG / CAN:FR), a leading primary silver miner, ran from under US$1.00 to over US$24 per share.
A 25-bagger. It only takes one winner like that to make an entire portfolio.
Now we have a new
real rally in precious metals. How do we know? Because silver has started to grossly outperform gold.
An article yesterday from Dynamic Wealth Research expanded on this trend.
Silver Powers Higher, Gold/Silver Ratio Hits 100:1
Silver has never been so underpriced versus gold. Ever.
But that [price] ratio is starting to rapidly reverse.
In just over two months, the ratio has gone from 125:1 to 100:1. As the price of gold has risen from sub-$1,500 per ounce to ~$1,750 (a 16% gain), silver has soared from a low of $11.60 per ounce to $17.39 – a 50% rise in price.
Over that period of time (as the gold price has been rising) silver has outperformed gold by roughly 3:1.
This provides precious metals investors with two very good reasons to have a significant percentage of their overall precious metals holdings in silver and silver mining stocks.
a) Silver always outperforms gold in a rally
b) Silver begins this rally more undervalued (versus gold) than at any time in 5,000 years
Market set-ups like this may occur only once in a lifetime. Yesterday’s article frames the opportunity.
Keep in mind that long-term price data indicates that humanity has always had a roughly equal preference for gold and silver relative to supply.
The long-term 15:1 price ratio closely mirrors the 17:1 ratio at which these two metals occur in the Earth’s crust.
However, because silver is grossly underpriced, the silver mining industry has been almost completely wiped out. As a result, the current supply ratio is only 9:1 – roughly half the natural rate of occurrence.
At a 9:1 price ratio, silver would be at nearly $200 per ounce today.
Silver is on fire. But this is just the beginning.
At a fair market price for silver, it’s still more than a ten-bagger from the $17.39 per ounce at which it currently trades.
Silver was a 6-bagger in the last big rally. It produced gains in silver mining stocks in excess of 2,000%.
Today, silver itself is a potential ten-bagger. You’ll need a calculator to project where the leading silver mining stocks may end up.
There is big money to be made in the gold sector. But the real profit potential lies with silver.
DISCLOSURE: The writer holds shares in First Majestic Silver.
