What Happened to Silver?

It seems like ages ago that silver was the talk of the town. As silver spiked towards $50, the expectation was for the outright collapse of our entire monetary system. That didn’t occur as planned; as usual, before a bull market make its biggest move, the believers need to disappear. That’s the process occurring as we speak.

If an asset is trading within it’s normal range, it is generally not interesting to me. Silver, on the other hand, is in the middle stages of outright capitulation and is headed straight for a retest of the price point that marked the inception of the last bull market move.

This is a situation that interests me.

Gold vs Silver

Most investors assume that gold and silver are one and the same- they are both ostensibly monetary precious metals and inflation hedges. Those are broad generalizations that are up for debate. But here’s something that isn’t: even in a two-tier monetary system, gold and silver have always fluctuated against each other. In other words, these are markets that must be viewed separately, at least on a timing basis.

If you recall, silver hit a spike high ahead of gold in 2011. This was closer to a classic bubble than the top in gold. Near the top, I heard forecasts of $500 in silver that were based on the lower historic range of the gold:silver ratio and hyperinflation, which is a little aggressive in my opinion. The truth is, we are measuring silver in dollars. The dollar is the global reserve currency. As such, the entire global monetary system will most likely collapse long before that theoretical price range is realized.

Anyway, the fact remains that gold and silver will fluctuate against each other. And generally, this ratio will determine which asset is undervalued against the other. Right now, silver is becoming increasingly undervalued.

Gold to Silver Ratio

 

I personally sold out most of my silver in the high $30′s. As far as a reentry, I’m looking at the low teens. If and when that price point is realized, I believe we will be in a “back up the truck” moment. The extremes in markets that I like to talk about are starting to develop, and this is when the real money is always made.

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