AUG 9, 2017 Jeff Clark, Senior Precious Metals Analyst
There is a very specific condition for silver that has been a fairly reliable predictor for the price. Once this condition is met, silver has historically soared over the next two to three years.
Since the mid-1990s, the gold/silver ratio (gold price divided by the silver price) has hit 80 a total of four times. While the ratio has certainly been higher in the past, since 1995 it has reversed shortly after touching this figure.
And what has the silver price done when the ratio reverses?
My friends at First Majestic Silver (full disclosure: I own the stock) put together a compelling chart that shows this trend. If you’re a silver bull, it’s pretty exciting.
They measured gold and silver’s price performance after the ratio hit 80 and reversed. Check it out.
In all three of the last times the gold/silver ratio hit 80, it reversed and the silver price gained a significant percentage. It rose in every instance, and since the ratio was falling, it outperformed gold by a wide margin. And notice that the process was not short-lived, but lasted 2-3 years.
You’ll also notice that in every episode, the ratio bounced higher after an initial fall, traded sideways or rose for a period of time, and then abruptly continued to fall again. This mirrors what appears to be happening now—which implies the trend is repeating and that silver will likely be much higher by this time next year.
This tendency is fairly reliable, in part because it’s repeated itself under the same conditions. Also because it occurred during a bear market—the mid-1990s were so punishing, in fact, that the period was dubbed the “nuclear winter” by miners. The trend even took place when we know the silver market was manipulated.
If the current trend plays out as the prior three times, the silver price is headed much higher within the next year. If it matches past performance, silver will reach anywhere from $30 to $65.
This data argues for patience. It also suggests that now is the time to accumulate the metal, before it rises. Depressed prices don’t last forever.