On March 30, I told you it was time to buy silver. Did you listen? I hope so … because the silver price took off.
We missed the bottom by about a week. Silver hit $11.98 per ounce on March 18. On that day, it took 124 ounces of silver to buy an ounce of gold. It was the largest gap in history. We recommended it on March 30, after it had soared about 20%. But we didn’t miss the trend — it spiked another 20% after we recommended it!
But let’s back up a bit … When the coronavirus hit, investors dumped stocks and looked around for places to put cash. Gold is a traditional store of value, so it was a logical place for some of that cash to end up. However, silver has exposure to industry, so its price fell. (We’ll talk more about this in a minute.)
From February to March, the silver price fell 36% from $18.63 to $11.98 in just a couple weeks. You can see what I mean in this chart:
While the gold price sagged too, it recovered quickly. Investors pushed enough cash into the yellow metal to drive the price from its low of $1,471 to a recent high of $1,748 per ounce.
However, as we discussed, when the gold to silver ratio gets high enough, silver becomes attractive as an additional store of value.
Why We Like Silver Right Now
You can think of it like bonds. Let’s say a super safe bond paid an 8% yield. While a less attractive bond paid 9%. We’d buy the supersafe 8% bond, for sure. But if the supersafe bond paid 2% and the lesser bond paid 15%, it might be worth the risk for the higher yield.
But what if the lesser bond paid 25%? Or 30%? That’s like what was going on with silver. It was extraordinarily undervalued compared to gold. That’s because gold is a traditional store of value. Billionaires, hedge funds and central banks began loading up on gold months ago. But not silver … until recently.
You see, silver has one foot in industry and one in precious metals. Industrial demand uses nearly 580 million ounces of silver per year. So, in the face of an economic crisis, many hedge funds believed there would be an excess of silver on the market. As we saw with oil, when demand declines, the price can plunge.
Many smart folks thought we’d see deflation from the coronavirus pandemic. And that’s terrible for precious metals’ prices. But giant banks around the world solved that problem. The amount of money printing going on around the world guarantees inflation, rather than deflation.
Silver’s price did fall initially, as demand fell and deflation fears ran rampant. But its value as a precious metal exploded as the gold price continued to climb. And as inflation expectations grew, so did silver’s potential value.
So, while the gold price rose 19% from its mid-March low, silver exploded.
The price of silver soared 46% from its low to today. It was one of the strongest performers in the last two months.
In the March 30 article, I recommended we buy either the iShares Silver Trust Exchange-Traded Fund (NYSE: SLV) or the Leveraged VelocityShares 3x Long Silver Exchange-Traded Note (Nasdaq: USLV).
If you followed my recommendation on either position, congratulations!
If you bought SLV, you made 24%. And if you bought USLV, you made 84%. Those are outstanding gains in just eight weeks.
But here’s the thing. That rally isn’t close to over.
Back in 2011, the price of silver broke $50 per ounce. I expect silver to eclipse that price in the next 12 to 18 months. You can see our analysis on the silver market — and why we expect it to soar from here — in my Real Wealth Strategist newsletter. But I don’t stop at silver, I cover all different resources and investment opportunities. You can click here to see a presentation on how I find these investments.
The great news is that we will have opportunities to get in at great prices. Silver rallies never go straight up. So, use those dips to open new positions or add to existing ones.
Good investing,
Editor, Real Wealth Strategist
