Traditionally both silver and gold have been considered hedges against inflation.
That means in times of economic uncertainty and low-interest rates, we expect the spot price of both metals to spike upwards.
Gold is certainly reaping the benefits of the current economic situation. Although we haven’t seen 10-year highs…yet, we have seen spot prices for gold that haven’t been since 2012.
The lowest price we’ve seen in the last 60 days has been $1,673.
Silver on the other hand just seems stuck.
Over the past five years, prices of the second-place metal have gone nowhere.
In fact, silver hasn’t seen a heyday since 2011. Two years after the recession ending in 2009.
During the Great Financial Crisis, unemployment reached 10%, the Fed expanded monetary policy, drove down short-term interest rates to zero and bought longer-term government bonds in unprecedented amounts. Sound familiar?
Yes, the spot price of silver does usually lags the spot price of gold. That’s one reason that investors look at the gold-silver ratio. This ratio is simply the amount of silver that it takes to by an ounce of gold.
Over the past 30 years, the gold-silver ratio has been at an average of 67. That means it takes 67 ounces of silver to buy one ounce of gold. On March 20th, the ratio hit 118! In fact, it’s been trading above 85 for the entirety of 2020.
It’s no longer a question of IF silver will follow gold’s increases, but when.
Why Is Silver So Different Than Gold?
Silver seems to have fallen out of favor as a hedge. More investors think about silver as an industrial and technological input.
The industrial use of silver accounts for more than 50% of annual demand over the last five years. Whereas, only 10-15% of gold demand is industrial use.
Silver is used in solder, batteries and dentistry. It’s also found in LED chips, RFID chips, semiconductors and solar panels.
By 2021, it is expected that the US will have more than 100 GW of solar power installed.
All signs point to an increase in demand for industrial silver.
And although the spot price is lagging, investors haven’t completely abandoned physical silver. In 2019, the consumption of silver coins and bars jumped 12%.
With silver toying with the miner break-even level of $17, it can no longer be ignored. It’s time to invest before that profit potential is taken off the table.
Pure Silver Miners Still Have Room to Explode
There are plenty of companies that offer silver coins and bars. But the real winners of $20 silver will be miners.
But you can’t just pick any silver miner.
Take a look at shares of Wheaton Precious Metals, formerly known as Wheaton Silver (NYSE: WPM).
Shares hit an all-time high this year. Even despite the correction, share prices are still way too overbought for shareholders to profit.
And that’s the case for most companies that mine other metals in addition to silver. Investors have already run share prices up due to the spot price increase of gold.
Instead, look for miners that are more pure silver plays. More specifically those that have mines in Mexico, since Mexico is the top silver producing country in the world.
I recommend looking at First Majestic Silver Corp (NYSE: AG).
First Majestic owns 100% of three silver producing mines in Mexico. It does produce some gold, but the reserves are majorly out shadowed by its silver reserves.
Check out share prices for the past 10 years.
Investors haven’t realized the potential sitting here.
For the first quarter of 2020, the company saw revenues of 1% lower compared to the previous year. This is despite postponing the sale of approximately $5.3 million of metals due to the rocky economy.
Plus, management is still on the lookout for profitable silver mines. Just last week, it announced the acquisition of a silver stream from the Springdale Gold Project located in Ontario.
It’s the perfect time to get in on this silver miner. Technology will keep pushing demand and interest rates will be at zero for the foreseeable future.
You want to make sure you’re already in before other investors catch on.
To your prosperity,
Joshua M. Belanger