The Scoop on Silver
If you’ve been paying attention to the markets over the past week or so, you’ve probably noticed that silver is grabbing headlines.
Over the past month alone, silver is up about 10%... And many metals analysts are now coming out of the woodwork to claim we’re going to see $50 silver on the way to a $100 breakout… Or maybe even higher!
That could happen. I think the story for silver over the long term is a lot like the story for gold. It’s going higher. I don’t know how much higher or on exactly what timeline we’ll see the biggest moves…
But I want to be very transparent with you about silver.
The only real barometer we have to measure silver accurately is to compare it to gold.
Everyone has their own interpretation of what ratio the silver price should trade at, leading to some ridiculous predictions. Take a look at the gold vs silver ratio since 1975.
Gold currently trades for 91X silver. Since 1975, the ratio has averaged 63X. Many claim that silver will return to its historic 15:1 ratio. Don’t hold your breath. I prefer to look at a more statistically based measure of the gold/silver ratio. I always refer back to the money which is the only thing that matters.
Both silver and gold are precious metals with a strong history of monetary usage and trade with R squared correlation at 80%. So GP conducts a simple regression study to determine where silver should be valued based on gold trading at $3,300/oz.
The regression study shows silver is still currently undervalued by 16% at $36.74/oz vs gold at $3,333/oz. Fair value silver at $3,333/oz gold is $43.91/oz. So even though silver has had a good year up 24.2%, it’s still undervalued vs gold based on their prices since 1975.
Now, since I’m a CMT that knows the chart patterns, as well as CFA that can determine an equities fair value based on profits generated by an asset, I’m fully aware of the strong chart pattern silver exhibits.
Silver has been consolidating in a large cup and handle pattern and on the verge of making a large breakout. Instead of relying on drawing squiggly lines on a chart, let’s again look at the data.
In 1980 and 2011 the silver price rose to reach a 80% premium to the predicted fair value based on gold. An 80% premium today places silver near $80/oz. Now, don’t go all-in and buy any silver miner to capture this potential profit. There are a few reasons why.
I wrote to my, Golden Opportunity readers, last week that “everyone gets burned in silver.”
That’s because it is just so damn volatile. It tends to soar faster than you can imagine for a couple of days before crashing even faster in subsequent days.
If you’re trying to trade silver, it’s extremely slippery and hazardous. I do not recommend it.
However, if you’re looking to own silver miners, you can do it… but you need to be extremely careful.
That caution is required for a few reasons.
For one, most silver stocks are garbage. As I wrote in GO last week:
“Most silver companies are total trash.
That’s because most of them are cashing in on the excitement of silver, so they’re run as hype machines, not as shareholder friendly businesses.
For one, most of the silver miners sell something called “concentrate,” and they only get paid 85% of the metal value.
Gold miners and pure silver dore producers get paid 99% of the value for their mined metal.
At the same time, most silver miners end up being unprofitable because they’re not run efficiently… they take shortcuts to bring as much silver as possible to market under lousy terms.
To make up the difference, they constantly dilute shareholders, issuing new shares into the market whenever they can.
And when silver rips higher pushing share price up they sell even more shares.”
Another big problem with investing in silver miners is that most of the silver that comes out of the ground every year is mined as a byproduct of gold or copper or some other mineral.
That means there are very few silver pure plays in the market. You will find dozens of companies with “silver” in their name that don’t actually mine very much silver as a share of their total mining output.
So, rising silver prices don’t really mean much for their bottom line…
Silver miners face all of the same hazards and uncertainties as gold miners, but they have much more volatility. Most of them lose money.
The bottom line: exercise caution with silver stocks.
Best,
Garrett Goggin, CFA
Chief Analyst & Founder, Golden Portfolio
P.S. I don’t run a “Silver Only” model portfolio—but inside Golden Portfolio 10X, I cover what I believe are the very best silver companies on the planet. These aren’t hype-driven names or serial diluters… they’re shareholder-friendly businesses with real value and real upside potential as silver moves higher.
If you’d like to learn more about the portfolio call Spencer toll free at 1-833-780-3479 or email him at support@goldenportfolio.com. He’s U.S.-based and happy to help you get access to these recommendations.
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