2020 Could Be a Great Year for Silver Prices
Silver prices could soar a lot in 2020.
The gray precious metal trades around $17.50 now, but by the end of 2020, it wouldn’t be shocking to see it trading around $25.77. That would be about 47% higher than the current price.
Why have such a bullish take on silver? Because this metal is possibly one of the most undervalued assets out there at the moment, and it continues to get ignored.
Pay Close Attention to the Gold-to-Silver Ratio
How do we value silver prices? Look at the gold-to-silver price ratio. It’s one of the best valuation measures for silver. This ratio tells us how many ounces of silver it takes to buy an ounce of gold.
Now, look at the chart below and pay close attention to the lines drawn on it. For long-term readers of Lombardi Letter, this type of chart should be familiar.
Chart courtesy of StockCharts.com
There are a few things to watch here.
Currently, the gold-to-silver ratio stands at 85.98. This means it takes 85.98 ounces of silver to buy one ounce of gold. Mind you, the number by itself doesn’t really mean much. You have to compare it with historical averages and see how it behaves at certain levels.
The average of the gold-to-silver ratio since 1970 is around 57.61, so the current ratio stands 49.2% above the average.
Assuming that this ratio comes back to its historical average and gold prices remain the same at around $1,485, silver prices would have to surge to $25.77.
But here’s the thing: 57.61 is the historical average. Since 1995 or so, there has been a pattern with this ratio and it shouldn’t be overlooked.
It’s like clockwork. Every time this ratio reaches 80 or above, it drops down to around 45.
In late 2018, the gold-to-silver ratio moved above 80 and it has been above that number since.
Assuming we see the pattern play out again in 2020, wherein the ratio drops to 45 and gold prices don’t move, silver prices could soar as high as $33.00. That would be about 88% higher than the current price.
Let’s even think outside of the box here too: the naturally occurring gold-to-silver ratio in Earth’s crust is around 17.
Assuming we get there, the price of silver could surge as high as $87.00; that’s roughly 397% above the current price.
Where’s the Opportunity as Silver Prices Surge in 2020?
Dear reader, the outlook for silver prices in 2020 seems bullish.
When I look at the gold-to-silver ratio, my stance on silver continues to get stronger.
Given all that’s happening in the silver market, I am paying very close attention to silver mining companies. If silver does move up by 47% in 2020, you could bet that silver miners will generate a much higher return. It wouldn’t be surprising if a few mining companies see their stock prices double, triple, or more.
I will end with an example: in 2019, the price of silver increased around 11%. Shares of silver miners like Pan American Silver Corp. (NASDAQ:PAAS) increased by more than 55%. In other words, for every one-percent increase in silver prices, PAAS stock increased by about 5.5%.