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Silver Price Poised for Repeat of Legendary 2008-2011 Run

Posted By Isaac Nuriani |

Last week’s blog article detailed the recent stellar second quarter for both gold and silver. Gold has been doing good work for savers for some time. The metal has demonstrated steady strength since the fourth quarter of 2018 when the S&P 500 fell 14%. However, last June gold truly began to pop. That’s when the Federal Reserve announced interest rates would come down after raising them four times in 2018. Since then, gold has climbed 35% overall. But gold really showed its teeth during the recently completed second quarter. In the span of just three months, the price of gold improved by 13%.

Silver, too, started coming to life last summer. Unfortunately, the panic-driven volatility that rocked assets at the outset of the pandemic hit silver especially hard. Even as gold remained resilient through the first quarter of this year, silver prices suffered. Gold was up roughly 18% from last June through the end of Q1 2020, but silver sank 5% in that period.

But that’s the funny thing about silver. It is downright notorious for being late to the party when conditions for precious metals are improving. But “late to the party” is not the same thing as not showing up. And when silver does show up, it arrives not merely as another guest, but as the proverbial life of the festivities.

Yes, silver appeared to be uninspired from last June through the end of the first quarter. But it finally did make its entrance during the second quarter. And in that quarter, which saw gold register its aforementioned 13% increase, silver prices flew up a wholly impressive 32%.

Now moving toward 20 dollars per ounce, silver is trading at its highest price in nearly four years. As exciting as that is, there’s still more important information. The factors now assembling around the metal suggest the best is yet to come for silver this time.

During the years of the 2008 financial crisis, from ‘08 to ‘11, silver prices soared roughly 400% as gold improved by “only” 160%. Some of the same influences that sparked silver on that run 12 years ago are positioning it to soar again. Although gold is the more popular metal in many ways, I believe a precious metals portfolio without silver is incomplete. Silver’s remarkable performance during previous precious metals bull markets is a testament to that idea. And now, we could be looking at another opportunity for astute retirement savers to capitalize on an exceptional silver price surge.

Silver Price is Up – Analyst: Current Demand Is Unprecedented

There’s a buzz around silver price right now that’s unlike anything we’ve seen before.

One reason for it is what Peter Spina of GoldSeek.com says is a historically significant consumption of silver exchange-traded products. Spina tells MarketWatch that “never in the history of silver have we seen such demand for [the metal] in such a short period of time.”

MarketWatch also provides revealing information about silver consumption via the Silver Institute, the most prominent international association devoted to the white metal. According to the Silver Institute, 196 million ounces of silver were purchased through exchange-traded products (ETPs) in just the first half of this year. Up to now, the highest annual recorded inflow was 149 million ounces. Notably, that occurred in 2009 when the fallout from the 2008 financial crisis still was unfolding.

So, why all the interest in silver?

Spina has some thoughts. He says silver has been “dismissed and mostly ignored over the last few years, as many former silver buyers turned to cryptocurrency and more exciting markets.”  He also points to what he believes is a historic undervaluation of the metal by the marketplace. Spina says recent figures for the gold-to-silver ratio are proof of that undervaluation.

The gold-to-silver ratio is a simple metric. It’s a measure of how many ounces of silver can be purchased by one ounce of gold at any given time. When silver is more expensive relative to gold, the ratio is lower because an ounce of gold buys less silver. Conversely, when silver is cheaper, the ratio is higher, which means in part that there’s more room for silver price to grow and more likelihood that it will grow. The number is close to all-time highs right now. That suggests silver could be way undervalued and poised for a meaningful surge.

Spina says the ratio is “one of the best value indicators” of silver price growth. Until recently, the ratio had spent several months above 100. That’s an eye-opening number, considering the measure has averaged around 60 or so over the last 20 years.

Presently, the ratio is around 91. It’s worth noting the ratio fell from 115 to 95 in the second quarter, coinciding with silver’s 32% price increase that period.

Massive Gold-to-Silver Ratio Drop Coincides with Historic 2008-2011 Silver Price Rise

The gold-to-silver ratio could decline much further from here. What might an additional drop from the low 90s down to – or even below – the millennium’s average of 60 mean for the silver’s price? Silver’s jaw-dropping 400% jump from 2008 to 2011 occurred as the gold-to-silver ratio fell from 80 to 41.

Spina contends that silver has been ignored on the part of investors over the last several years in favor of cryptocurrency. Personally, I have seen no hard-and-fast evidence of that. However, I’m less inclined to quibble with his rationale regarding the gold-to-silver ratio. The metric does seem to provide some utility as an indicator of silver valuation. Augusta Precious Metals’ senior economic analyst Devlyn Steele thinks so, too. He recently wrapped up a six-video Silver Boom series outlining why he thinks silver is at the outset of another run for the ages. In his presentation, Steele points to the gold-to-silver ratio’s current levels as one basis for his projection. He’s calling for silver price to go as high as $55 per ounce by 2022. If that happens, it would represent a 180% increase over current prices.

Silver has the capacity to demonstrate a unique price reaction in response to economic conditions such as those characterizing the landscape right now. A similar scenario – along with a highly favorable gold-to-silver ratio – helped propel silver prices during its epic 2008 to 2011 run. Because silver is a prized industrial component, it has the potential to strengthen in two ways when economic conditions are dire. First, silver is a safe-haven asset that can help hedge against the risk of dollar debasement resulting from Federal Reserve quantitative easing (QE).  Second, when QE helps improve conditions for business and industry, silver demand could go up even more with increased production.

For these reasons, experts are lining up now to say it looks as though a dash upward in silver price could happen again. Two weeks into the new third quarter, the price of silver is now 42% above where it was at just three months ago. No one knows for sure where it will go from here. But it is difficult to imagine a better set of conditions existing for silver than those in play right now.

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