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Since the beginning of the year, silver prices have been trending higher. In fact, the gray precious metal is one of only a few assets that are up in value. Be on the lookout, big gains could be ahead.
Before going into any details, please look at the chart below of the gold-to-silver ratio. At the core, this ratio tells us how many ounces of silver it takes to buy an ounce of gold. This ratio is usually used to value silver.
If the gold-to-silver ratio is higher, it means silver prices are undervalued. If it’s lower, then the gray precious metal is overvalued.
Notice something interesting in the chart above? The ratio stands at a level that, over the past 20 years at least, has suggested silver prices are undervalued. Every time the ratio reaches 78–80, it starts to drop a few months later, then rests around 43.
Simple math question: what would the silver price be if the gold-to-silver ratio drops to 43? If we assume that gold prices remain the same, then silver prices would have to go to up to around $27.00 an ounce—an increase of more than 80% from where the precious metals prices currently sit.