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Let's face it, 2013 was rough on silver.
The precious metal started out the year at $31, and ended at $19.50, continuing an overall slump dating back roughly to mid-2011.
That, however, obscures a massive run, like gold, that silver embarked on in 2001 when it was near $4, eventually topping out around $49 in April 2011. At its peak it generated a return of 1,091%.
Heading into 2014, I've pinpointed a number of key drivers – some often missed – that say silver may be poised for another spectacular run…
Two Bullish Signs – That Others Miss
The gold market is much bigger than the silver market.
For that reason, silver traders closely watch gold price action. Since the 2001 bull market began, 92% of silver's price behavior has correlated to gold's.
That's why gold's recent strong price action since the start of 2014 is a positive sign that silver's poised to rise too.
A few weeks back, I told you about 1,600 Reasons To Buy Gold Now. In effect, all the reasons I presented on gold apply to silver as well.
But in addition, there are a few more drivers specific to silver that all point to higher prices.
Like gold, silver's often hated. That in itself is often a great contrarian indicator.
The way to gauge this is to observe what the speculative traders are doing. Particularly when their bets are at or near a sentiment extreme, doing the opposite can be lucrative indeed. That's been the case a number of times since 2001.
Back in early December, silver-futures short positions of all speculators (in the Commitment of Traders COT reports from the US Commodity Futures Trading Commission) hit a bull-to-date high at 54,000 contracts.
This kind of extreme often signals a strong performance in the silver price over the next 1 to 3 months.
Since bottoming at $19 in early December, the silver price has already gained 7%. And I think that's just the opening act.
The most recent COT reports show speculators have already pared back their short bets considerably, so this reversing trend is playing out in textbook fashion. The extreme pessimism is already subsiding.
We saw this happen in each of the past three years, and conditions look ripe for a repeat.
Another useful way to gauge whether silver is cheap or expensive on a relative basis is to use the Gold/Silver ratio.
By dividing the gold price by the silver price, you can tell how many silver ounces one gold ounce will buy.
In the past decade, the range for this ratio has mainly been between 45 and 60.
Currently, one gold ounce is good for 63 silver ounces. That's high by historical standards, and it's high by bull-to-date standards.
Simple reversion to the mean tells us to expect silver to climb relative to gold. If silver were to just return to the middle of that range, then a Gold/Silver ratio of say 53, with gold at $1,250/ounce, would yield a silver price around $23.60, or 18% higher from here.
But silver is so overdue for a corrective bounce, it could easily reach for the bottom of the range. If the Gold/Silver ratio went to 45, we'd be looking at $27.75 silver based on $1,250 gold.
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About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.
As said in the article on silver its about time for a rally for silver, so low for so long
Don' understand — you say, "Silver to have another 1000% run!" That would make silver 190.00 and yet in your article it states you suggest $27.75. Which is it a 1,000% run or what? Just don't get your heading and meaning of it.
I am confused.
Peter says the following and this article is dated today.
"Since bottoming at $19 in early December, the silver price has already gained 7%. And I think that's just the opening act."
I just checked the Silver Spot price and it is at $19.34. And it has been bouncing along in the mid $19's all week. So, just to be clear, we have seen more like a 2% to 4% increase off of $19.
SLW didn't amplify the silver price in the last bull market. Both SLV and SLW were laggards. Since I owned both, I was disappointed. I am sick of trying to guess the precious metals market and won't participate anymore. That's why it will probably go up. LOL.
The headline is misleading. Mr Krauth does not predict Silver will increase by 1000%. He mentions that the bull market from 2001 – 2011 saw a 1091% increase from $4 to $49.
Rather more conservatively he alludes to bullish factors which in themselves are no definite precursor to higher prices otherwise we would already have higher prices!
In either case you would have to wait another 10 years for your 1000%.
I think you have been reading zealllc.com
This article appears to just take that original analysis and re-present it. Nothing new.
Ok, what people are making a huge mistake about is concentrating on the dollar price of gold and silver. You must allow a paradigm shift in your perception, that is, you must acquire them at any price. You see, they will be the only thing left. All paper is going zero. So rather love these dips and buy into them and stop bitching. Its a gift from the evil price fixers that wont last. The day is coming when you cant get silver in large quantities.
You are correct Angus in stating that gold & silver pricing is the only focus here. I measure gold & silver ratio's against the DOW Jones and others. The key to go all in with Gold & Silver is 57:1 ratio, once you have this….its time to buy!
The silver market is strongly influenced by the trading activities of J.P. Morgan Chase and some of the other big banks. They control the price, yet the CFTC does nothing about limiting the scope of their trading positions. The position limits set by the CFTC are insufficient to curtail the manipulative action of these banks. Until this situation is corrected, it is meaningless to talk about fundamentals or price trends. We're just in it for the ride, while the big guys steer the ship.
I keep reading about silver on a daily basis . Why does the media think its got the inside scoop when In fact its blowing lots of hot air and speculates what gold or silver will be ? When it happens then the public will know . I own hard assets and will hold till that day comes when it hits the jackpot and then those who with hard assets , who stood fast will be the winners. After all its an investment and risk but its more of the risk when you have paper assets and not physical .
THINK AHEAD
If paper really "goes to zero" someday, then in effect, that is a monetary (dollar) collapse. Just how do you plan to protect (guard) your gold and silver anyway? More importantly, who is going to buy it afterwards? I guess you could barter with the truck gardeners for food and staples.
The government or the banks (that survive) will be the only buyers around and will dictate the price. It won't be $1,000/ounce (silver) or $5,000/ounce (gold). I expect they will low-ball gold and silver sellers. Probably willing to pay only $45/ounce for gold. P.C. owners can then take it or leave it. However, you can not eat gold or silver and they know you have no other local alternatives.