Not to say “we told you so”, but…We told you so! An article that we published in our blog just a couple of weeks ago was about how gold and silver investors can potentially profit from trading the gold to silver price ratio.

After making double tops around 91:1 in January and February, the gold/silver ratio has, for the second time in as many months, fallen to around the 85:1 level. A break below 85 would likely target 2023 lows around 78 to 80:1 as the next potential support level. Below that, the 65 to 70:1 ratio level quickly comes into view.

Silver Price Surge – the Start of Something Big?

Okay, a drop in the gold/silver ratio from just above 90:1 down to 85:1 is not, admittedly, an earth-shattering move. However, if you’re wanting to take advantage of silver outperforming gold, then you probably don’t want to wait until there’s already been a huge decline in the gold to silver price ratio.

Since the first of March, gold is up approximately 5%, moving approximately $100 higher, from around $2,080 to $2,175. The price of silver is up approximately 10%, moving from closing out February at $22.67 to its current price of $24.85. Let’s just project that same pace of relative gold and silver price increases forward a bit. If gold rises by 5% again in each of the next two months, and silver again rises by 10% per month, then that would drop the gold/silver ratio down to around 79:1. That would translate to more than a 10-point decline in the ratio from the January/February highs of 91:1 – in just a little over two months.

Now, annualize that pace of decline in the ratio out for the rest of the year, and we could see the gold to silver ratio falling by as much as 30 to 40 points by the end of 2024 – in other words, dropping down close to 50:1.

The Case for Much Higher Silver Prices

The price action in the precious metals market thus far in 2024 clearly appears to be signaling a major bull market in gold and silver. Even in the face of higher interest rates – which typically tend to depress gold and silver prices – gold has already surged to score multiple new all-time highs since the first of the year.

Silver’s price advance hasn’t taken it to new all-time highs – not yet – but it’s relatively easy to make a case that it will soon. And allow me to just quickly remind you that silver hitting a new all-time high above the $50 an ounce level would mean it DOUBLING in price from its current price level just below $25 per ounce.

When gold roared up to its first massive all-time high near $1,000 an ounce in 1980, silver’s corresponding all-time high at the time was approximately $50 an ounce. (By the way, that made the gold/silver price ratio at that time a mere 20:1.)

Now, consider this: Gold’s current all-time high is more than 100% higher than that 1980 high. If silver were to move up in price to a level equaling more than a 100% increase over its 1980 high, that would put the price of silver well above $100 an ounce.

Is that an unreasonable projection? – Not according to Keith Neumeyer, CEO of First Majestic Silver (NYSE:AG), who, as recently as last year, gave a silver price projection of $130 an ounce. And Neumeyer made that call for $130 silver before gold and silver began their current bull market run. Other longtime precious metals market analysts and traders see silver going much higher – to $200 an ounce, or higher.

Many market analysts point to facts such as the huge drawdown in silver stocks on worldwide futures exchanges and the increasing shortfall in silver demand and mining supply. A supply shortage in silver is especially critical because of the fact that the industrial demand for silver is much higher than the industrial demand for gold. (Here’s a trivia tidbit you may not be aware of: there are 500 ounces of silver in the nose of every US Tomahawk cruise missile. And whenever one of those missiles is fired and detonates, that’s 500 ounces of the world’s silver supply that is gone forever, as it’s blown to bits and essentially impossible to recover.)

A look at the supply and demand chart below shows silver demand, beginning in 2021, starting to outstrip supply by an increasing margin. That supply/demand picture suggests that silver may be significantly undervalued at its current price.

The End of Gold and Silver Price Manipulation Could Slingshot Silver Prices Higher

It’s all but a recognized fact that major banks and central banks have conspired for decades to manipulate gold and silver prices – depressing them to artificially low levels. They’ve done this by engaging in massive short selling of gold and silver futures contracts – selling short gigantic amounts of gold and silver, futures contracts in amounts that they couldn’t possibly deliver if forced to.

While the CFTC has continued to officially deny the existence of such price manipulation, major banks, including JP Morgan and HSBC, have, time and again, been hit with multiple lawsuits alleging market manipulation of gold and silver prices. A bank-friendly US court usually ends up dismissing most of the lawsuits, but JP Morgan settled one such suit alleging manipulation of the silver futures market for “an undisclosed amount”. It further shelled out a whopping $60 million to settle federal probes into possible futures market price manipulation, including manipulation of silver futures prices.

Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA), is on record stating that, “the gold and silver price suppression scheme…has become blatant almost beyond comprehension”.

Well, that price manipulation scheme seems to finally be failing, at least in relation to gold, which just continues scoring one record high after another. I sure wouldn’t want to be short gold futures contracts at the moment. Would you?

Efforts to keep silver prices artificially low appear to have been more successful. Again, gold is at a price level that’s more than double its 1980 record high, while silver hasn’t yet taken out its 1980 record high of approximately $50 an ounce. What might explain that? – The answer is relatively simple. Because silver is so much less expensive than gold, banks can afford to sell short much larger numbers of silver futures contracts.

But there are increasing signs that the dam may soon burst on silver prices as well. One significant upward price pressure on short sellers of silver futures is the large drawdown on silver stocks held at major trading exchanges such as COMEX. This drawdown in available silver is due to large numbers of investors who are buying long silver futures contracts electing to take delivery of physical silver, rather than simply close out their positions prior to contract expiration.

There are also some signs of panic showing among some of those who allegedly may be involved in price manipulation. The fund manager of Aberdeen’s silver ETF, SIVR, made the rather odd complaint that, “an online campaign intended to harm hedge funds & large banks is encouraging retail investors to purchase silver and shares of Silver ETPs to intentionally increase prices". I’m wondering why in the world a manager of a silver ETF would be so upset about a move to encourage retail investors to purchase silver and to increase prices. I mean, call me silly, but it seems to me that if you’re the manager of a fund that holds physical silver that it makes no logical sense whatsoever that you would be upset about silver prices increasing.

One major reason that any attempts to hold down gold prices appear to be increasingly failing on a large scale is the fact that central banks worldwide have made the major shift to buying more and more gold. The substantial increase in central bank gold buying, while obviously focused on gold, is nonetheless a general investor demand factor in the precious metals market that is also likely to put increasing upward pressure on silver prices.

So, what happens if massive short sellers of silver futures, faced with an inescapable bull market in precious metals, finally give up the fight and stop such concentrated, large-scale short selling? – It would not be an unreasonable conclusion to expect to see silver prices skyrocket, zooming past its historical $50 an ounce high, and leaving that price level far back in the dust.

Silver Outperforming Gold – Summary

Silver has long been underperforming gold. However, the current strong surge upward in both gold and silver prices is showing signs of that relationship changing, of the price of silver beginning to increase at a significantly higher rate than the price of gold.

Relative to their respective all-time highs, silver simply has a lot more “room to run” when compared to gold. Additionally, the gold/silver ratio is quite high in terms of its historical levels (throughout the 20^th century, the gold to silver ratio was generally more in the neighborhood of between 20:1 and 50:1 – which is only a little more than half of its current level).

Silver may be poised to deliver precious metals investors some colossal returns on investment in 2024 and beyond. Although forecasts of $100, $200, $300 an ounce silver may seem unimaginably high at the moment, it would be unwise of investors to just casually dismiss the possibility of such an explosion in silver prices occurring. Keep an eye on that gold/silver ratio.

• J.B. Maverick

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https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-in-the-future/

https://goldsilver.com/price-charts/gold-silver-ratio/

https://www.youtube.com/watch?v=6ngmZD487ng

https://goldbasics.blogspot.com/2011/04/500-oz-silver-in-tomahawk-missile.html

https://www.cnbc.com/2020/09/29/jp-morgan-settles-spoofing-lawsuit-alleging-fraud-in-metals-trades.html

https://www.sprottmoney.com/blog/A-Silver-Price-Manipulation-Primer-Craig-Hemke-Feb-16-2021

https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-price-manipulation-fact-or-fantasy/

https://www.cnbc.com/2023/12/08/geopolitics-central-banks-could-keep-gold-demand-hot-in-2024-world-gold-council.html

https://www.bullionstar.com/blogs/ronan-manly/gold-silver-price-manipulation-the-greatest-trick-ever-pulled/

https://www.silverinstitute.org/silver-supply-demand/

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