Correlation Between S&P 500 and Silver Prices Says Massive Upside Ahead
Silver prices could be setting up to soar 1,000%. Don’t ignore the precious metal, it’s selling at severe discount.
Here’s what investors need to know: the price of silver has an interesting relationship with the S&P 500.
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Look at the chart below and pay close attention to the circled areas. It’s the five-year correlation between the S&P 500 and silver prices.
You will notice something really interesting; whenever the correlation between silver and the S&P 500 becomes extremely negative, we see bottoms fall into place. Whenever this correlation becomes extremely positive, we see tops made in the precious metal.
Chart courtesy of StockCharts.com
In 1976, the five-year correlation between silver prices and the S&P 500 hit -0.90. This is close to when a bottom in silver prices was formed. A few years later, the gray precious metal prices had increased roughly 1,000%.
We also saw this happen in 1992, when this correlation hit close to negative 0.90 again. Another bottom was formed, and then we never saw this low. The top wasn’t made until 2011. Mind you, in this move, we saw gains much bigger than 1,000%.
Now, the correlation between silver prices and the S&P 500 currently stands at -0.90 again. I question whether the price of silver could see another move to the upside, just like it did in 1976 and 1992.
If we see a move of 1,000%, it would mean prices going to over $160.00 an ounce of silver.
Long-Term Silver Prices Outlook: Bullish if You Own Mining Shares
With all this in mind, could we realistically see silver prices hitting $160.00 an ounce?
While the correlation is one thing, there are other factors that suggest silver could see a massive move to the upside.
The first thing investors need to know is that demand for the precious metal remains resilient. Despite declines in precious metal prices, we see buyers come in regardless, and it doesn’t look like this is stopping anytime soon.
Second, don’t forget: silver is a substitute for gold as well. As gold prices and gold demand improves, it’s going to have an impact on the silver market.
Third, low precious metal prices have really raised questions about mining production. We already hear major silver-producing regions reporting dismal production. If prices remain suppressed, the supply in the silver market could really be an issue.
Keeping all this in mind, let it be very clear: it shouldn’t be expected that silver prices could see a move of 1,000% in the next little while.
Understand that, in the previous cycles for the precious metal, it took several years for the entire move to take place. When the bottom was placed in 1976, the top wasn’t placed in until 1981.
The next time silver prices made a bottom, in 1992, the top wasn’t put into place until 2011.
But, there was one thing very common in all these cycles: the last few years of a move are the most lucrative ones; the biggest gains come in that time. Also, once the tops are made, losses in the years following are rigorous.
As all this plays out, look out for mining companies. If silver prices increase 1,000%, some mining companies could provide investors with five to 10 times those returns.
