Silver Will Soar On Its Next Rally

Are you fearful, or are you getting greedy?

That’s the question silver investors should be asking themselves now.

Novices have been panicking, while seasoned investors are salivating at the opportunities.

Silver has recently corrected by almost 8$ or 36% since peaking in early August. The drop to $22 brought it to less than half its all-time high.

Yet silver would still need to reach $175 to equal its inflation-adjusted 1980 peak of $49.

I don’t think silver’s correction is quite over yet, but it’s getting closer to a trigger point.

Longer-Term Indicator Points to Higher Silver

The gold-silver ratio is a great longer-term indicator of silver’s value relative to gold, and to search for signs of what might lie ahead for the metal.

(Click on image to enlarge)

Looking back several decades, each time the ratio reaches 80 it tends to reverse. From there, silver typically outperforms gold as the ratio falls. 

This past March, we reached an all-time high of 126. The ratio underwent a rapid mean reversion since then, dropping quickly to 70 before bouncing recently back above 80. I think there’s a lot more in store, and that once this correction phase is over, the ratio will continue to fall further.

If it drops back to 50, with gold at $1,950 that would imply silver at $39.If it falls even lower, say to 40, that implies $49 silver. But gold is not likely to stop at $1,950.If it reaches $2,200, a gold-silver ratio of 40 would mean $55 silver.

Near Term Indicators Suggest More Consolidation

In the first half of silver’s secular bull market from 2001 to 2011, taking it from $4 to $49, the metal underwent several sizeable price corrections.

In fact, silver experienced four corrections of 20% or more, with the largest drawdown being a whopping 57% in the midst of the 2008 financial crisis. And yet, silver went on to rise fivefold from that 2008 low to its 2011 peak. Needless to say, sellers were sorry, while patient holders were very happy.

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