Is Silver About to Hit $50 Per Ounce?

The precious metal has 100% upside.

| More on:
The Motley Fool

One of the last bargain bin sectors is finally moving higher… and triple-digit returns could be on the way. As I’ll show you today, one time-tested indicator is flashing a massive buy signal for silver. It won’t happen overnight. But before the run is over, we could see prices double… or more.

Let me explain…

The past few years have been hard for precious metal investors. Since the summer of 2011, gold is off more than 30% from its peak. And as we have covered extensively here at Motley Fool Canada, the gold mining industry has been clobbered.

Things are even worse in the silver space. The spot rate is off 45% for its peak in 2011 and many miners are struggling just to keep the lights on.

However, on a relative basis, this situation has left silver exceptionally cheap compared to gold. In April 2011, one ounce of gold could buy you 32 ounces of silver. Today, that same ounce of gold will buy you 62 ounces of silver.

That’s completely out of whack with the long-term averages. Historically, the price of gold is around 20 to 25 times higher than the price of silver.

Based on the long-term historical average and with the price of gold around US$1,300 per ounce today, the price of silver should be around US$52-65 per ounce. But on Thursday, silver closed the trading session at just US$21.13 per ounce.

This all means that silver is incredibly cheap right now in relation to gold. Eventually, either gold prices will have to fall or silver prices will have to rise to return the ratio back to normal. And with demand for the grey metal rising, it’s likely the price of silver and related investment products like the Sprott Physical Silver Trust (TSX: PHS.U)(NYSEMKT: PSLV) will increase.

You see, silver is useful. The metal has more than 10,000 commercial uses. And once silver is consumed, it’s often gone forever. It’s just too expensive to recycle the tiny bit of metal in each computer chip or cell phone.

Some of the world’s smartest money managers are also making big bets on silver. As I wrote about earlier this week, SEC filings have revealed that billionaire investor George Soros has purchased a $9.1 million stake in Silver Wheaton (TSX: SLW)(NYSE: SLW). This isn’t surprising given that the company has over 800 million ounces of silver reserves, more than any other silver company on Earth.

SEC filings have also revealed noticeable buying activity in a number of silver miners last quarter, namely Endeavour Silver (TSX: EDR)(NYSE: EXK), First Majestic Silver (TSX: FR)(NYSE: AG), and Pan American Silver (TSX: PAA)(NYSE: PAAS). Because the costs of running a mine are mostly fixed, these companies serve as a leveraged bet on metal prices.

What could have all of these Wall Street titans so excited? I’d say it could only mean one thing: they see a giant rally ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. Silver Wheaton is a recommendation of Stock Advisor Canada.

More on Investing

A close up image of Canadian $20 Dollar bills
Dividend Stocks

This High-Yield Dividend Stock Is a Monster Passive-Income Machine 

This top TSX dividend-growth stock offers a 7.4% yield.

Read more »

path road success business
Bank Stocks

Scotiabank Is Down 0.9% After Earnings: What Investors Need to Know

Bank of Nova Scotia (TSX:BNS) released earnings yesterday. Here's what you need to know.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

For a Shot at $5,000/Year in Passive Income, Buy 6,850 Shares of This TSX Stock

Whitecap Resources is a monthly dividend stock that offers you a tasty dividend yield while trading at a cheap valuation.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, May 29

Besides more Canadian corporate earnings, volatile commodity prices could give further direction to the TSX benchmark today.

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Investing

3 Soaring Stocks to Hold for the Next 20 Years

These three stocks are good bets for the long haul, given their healthy long-term growth prospects.

Read more »

grow dividends
Tech Stocks

Celestica Stock Is up 44% Since Earnings: What Investors Need to Know

Celestica continues to benefit from strong demand and production efficiencies, yet the stock remains undervalued.

Read more »

A plant grows from coins.
Investing

2 Dividend Stocks Paying 5% or More That Could Beat the Market in 2024 and Beyond 

Here are two top dividend stocks long-term investors may certainly want to consider for their yields and growth profiles right…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »