by Peter Schiff, Schiff Gold:
The price of silver broke above $28 an ounce Thursday morning.
In the last 30 days, silver has gone up by nearly 54%. On the year, the white metal is up over 71%.
Even with these big gains, silver remains historically undervalued compared to gold.
Even as gold has broken all-time records this week and is trading well above $2,000 an ounce for the first time ever, silver remains more than $20 below its all-time record.
The white metal has a double-top of around $50. It first got to that level in 1980 and then again in 2011. Peter Schiff recently said $50 is the real resistance level. Once it breaks through, it will go much higher.
Fifty-dollars looms very large. But there’s an old saying about these double-tops. I think they’re made to be broken, and silver is going to break this double-top. And the fact that it’s been there for so long means that when it does break — look out!”
The silver-gold ratio has dropped to just over 73-1. The spread has narrowed significantly in the last several weeks, but is still high by historical standards, signaling that silver has more ground to gain.
The silver-gold ratio is simply the number of ounces of silver it takes to buy one ounce of gold. It has been historically high for months. It was well over 100-1 back in March. The modern average over the last century has been between 40 and 60-1.
Here’s some historical perspective.
Geologists estimate that there are approximately 19 ounces of silver for every ounce of gold in the earth’s crust, with a ratio of approximately 11.2 ounces of silver to each ounce of gold that has ever been mined. Interestingly, the silver-gold ratio in ancient Egypt was 1:1.
In 1792, the gold/silver price ratio was fixed by law in the United States at 15:1. France mandated a ratio of 15.5:1 in 1803. Faced with the challenges of a bi-metallic monetary system with fixed exchange rates and the aftermath of a worldwide financial crisis, the US Congress passed the Coinage Act of 1873. Following the lead of other Western nations, including England, Portugal, Canada, and Germany, this act formally demonetized silver and established a gold standard for the United States.
With silver playing a smaller role as a monetary metal, the silver-gold ratio gradually spread.
Since the world went to a total fiat money system, there seems to be some correlation between the silver-gold ratio and central bank money-creation. During periods of central bank money-printing, the gap tends to shink. In fact, it plummeted in the aftermath of the 2008 financial crisis as the Fed engaged in extreme monetary policy.
Today, the money supply is expanding at a historic rate.
Silver is much more volatile than gold due to its industrial role, but at its core, it is still a monetary metal and it tends to track relatively consistently with gold over time. When gold goes up, it almost always takes silver with it. In fact, silver has historically outperformed gold in a gold bull market. As Ned Naylor-Leyland, precious metals fund manager at Jupiter Asset Management, wrote in a note last week, “During bull markets for both metals, fleet-footed silver often ascends faster than its heavier, more expensive cousin.”
The supply and demand dynamics also look good for silver. Investment demand has skyrocketed and supply is down. Mine output was hit hard by shutdowns due to the coronavirus pandemic, but silver production was already on the decline with mine output dropping four straight years.