Silver Prices May Be Down, But It Is Still Presenting a Great Opportunity
Silver prices trade at $14.45 an ounce. Year-to-date, the gray precious metal prices have declined more than 15%. From its highs in 2011, silver is down about 70%.
With this, one could be asking if silver is still worth the investment. Put simply, yes, it is.
Saying the very least, silver prices are too low to ignore. Remember the old investing adage: buy low, sell high. Silver could be that opportunity.
You see, in the short term, it’s possible that silver prices decline a little more.
Why? This could be mainly because of speculators just adding on to their short positions and faint-of-heart investors fleeing due to losses.
However, in the long term, the precious metal could reward investors immensely.
How Low Could Silver Prices Go?
Please look at the long-term chart of silver prices below.
Chart courtesy of StockCharts.com
Just by looking at the chart, the next big support level for silver prices isn’t until $10.00 an ounce.
If we assume prices drop to that level, we could be looking at a decline of $4.45 an ounce, or about 31%.
How High Could Silver Prices Go?
If we just look at the gold-to-silver ratio, silver would have to increase a lot.
Consider that the average gold-to-silver ratio since the 1970s is around 57. Currently, the ratio stands at 81. This means it takes 81 ounces of silver to buy an ounce of gold.
If we assume gold prices remain the same (at around $1,180), and the gold-to-silver ratio goes to 57, then silver prices would have to increase to $20.70. That’s $6.25 or 43% above the current price.
A Classic Economic Problem in the Silver Market
Beyond that, know that there’s a classic economic problem in the silver market. You won’t hear much about it in the mainstream.
There’s a massive disparity between demand and supply in the silver market.
We are seeing demand surge. Mints around the world are reporting higher silver sales and we are seeing new buyers emerge.
Keep in mind, silver has massive industrial use as well. It’s used in various technologies. For example, silver is used in solar panels. As it stands, the demand for solar energy is growing globally. This could mean that demand for silver in the solar industry could increase.
On the supply side, there are a lot of issues.
Silver prices are too low for miners to produce profitably. Their costs are rising.
If you look at major silver-producing regions, they are reporting dismal mine production figures.
Know that over the past few years, there’s actually been a deficit in the silver market—that’s when demand is higher than supply!
Looking at this, it wouldn’t be shocking to see silver prices much higher than just $20.70.
If fundamentals matter, it wouldn’t be shocking to see silver prices surging past $30.00 or even $40.00.
In the long term, don’t rule out $50.00 silver.
Silver Could Be a Better Trade Than Gold
Dear reader, the recent sell-off in silver prices hasn’t discouraged me at all.
I see it as a much better opportunity now than before. Just like gold, silver could have a limited downside but massive upside. I will also say this: silver is looking like a much better opportunity than gold.
I believe silver mining companies are also worth watching. They have been beaten a lot lately, but for the long term, they present a great opportunity.