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Tuesday, April 30, 2019

Gold/Silver Ratio Suggests Silver's Day is Coming

Lobo Tiggre says silver recovery coming, with the possibility of gaining a minimum of 25%.

silver's day is coming

Like many analysts before him, Kitco's Lobo Tiggre recently took note of just how disproportionate the gold/silver ratio is. According to the Kitco article, the ratio remains at historic highs of around 85, meaning that roughly 85 ounces of silver are needed to buy one ounce of gold.

Tiggre thinks this perfectly illustrates the harshness of silver's price lag behind gold. Over the past few decades, the ratio has stood firmly between 50-60, which should put silver prices above $21 an ounce based on gold's current standing. Going back further, the gold/silver ratio was usually tied closer to the metals' natural supply. U.S. law initially set the ratio in coinage at 15:1, while Ancient Rome had it at 12:1. According to the article, a ratio of even 18 would translate to silver prices of roughly $70 an ounce.

All this is happening during a time when demand for silver is flourishing, both among investors and manufacturers. While there isn't a clear explanation as to what's causing diminished silver prices, Tiggre places the blame on excessive above-ground supply due to silver mostly being mined as a byproduct of other industrial metals. Because these metals have been doing very well lately, a surplus of silver ore has been dug up that should become depleted in the near future. In reality, true silver mine production has been falling behind demand for years, reports Kitco.

Tiggre believes we can take cues from past occurrences where the gold/silver ratio was so out of proportion. In each of the three instances over the last two decades, an excessively-high ratio quickly made way for a major rebound in silver prices. Tiggre notes, however, that there are several technical differences this time around.

Silver was always more volatile than gold, meaning that spikes in gold prices such as those in 1980 and 2010 led to even greater spikes for silver, states the articles. Exacerbating this point is the fact that silver prices have been moving further away from gold since 2011. If previous charts are any indicator, this means that the next instance of silver playing catch-up will be momentous.

There are other factors that could expedite or intensify silver's comeback. A potential strengthening of China's economy could offset the global growth deceleration and provide silver with even more tailwind. Jewelry demand is already expected to intensify in the Asian nation this year, and an economic boom would deplete silver's available supply even faster. The latter will happen largely due to solar panel production, explains Tiggre, as manufacturers will no longer be able to cut production costs through silver once panel demand ramps up.

To Tiggre, the question of silver's recovery has long become a matter of when, not if. Instead, the analyst is now searching for optimal entry points before a price leap that should, according to historical precedent, see silver gain a minimum of 25%.

Tuesday, April 9, 2019

Gold Market Could See Major Breakout

Brexit troubles could help clear the path for gold to reach $1,400 an ounce by year's end.

Gold prices have remained virtually unchanged over the past week, even as a surprisingly optimistic jobs report gave the stock market some much-needed breathing room. According to a recent article by Kitco, however, the lack of any real price movement in the gold market may represent a calm before the storm, one that could end in a major breakout.

Gold’s price invariably thrives during times of geopolitical strife, writes Kitco, and there appears to be no shortage of the latter coming from different corners of the globe. Britain's troubles surrounding their exit from the European Union have made the headlines of most outlets in recent days as Theresa May's government appears unable to broker a deal with Brussels.

With the April 12 deadline for a satisfactory agreement fast-approaching, May requested that negotiations be postponed until June 30. According to the article, should the EU dismiss the request, Britain will be forced into a hard exit from the alliance, which could have numerous dire consequences. These include a devaluation of the sterling and even a potential revision of the Irish border.

Although a Brexit extension could help avoid this scenario, it will further erode the trust of British citizens as their parliament struggles to satisfy Brussels, suggests Kitco. The situation plays into existing tensions in the eurozone, which include Italy's opposition to Brussels' budget terms, an ongoing migrant crisis and an increasingly dovish European Central Bank.

The ECB recently downgraded its growth forecast and placed into question the prospect of hiking interest rates this year. An official announcement is scheduled for next week, and confirmation that rates will remain stationary could provide gold with additional leverage.

On the domestic front, the Federal Reserve's dovish turnaround in March already helped boost gold prices. The minutes from the meeting will be released on Wednesday, and market watchers will be looking to scour the transcript for details on just how far the Fed intends to pull back.

Although a potential U.S.-China trade deal could subdue gold prices in the short term, President Trump said that negotiations will likely last for weeks, leaving investors with little certainty. The culmination of the Mueller probe did little to calm domestic political tensions, and Trump's collision with Russia over Vladimir Putin's support of Venezuelan president Nicolas Maduro is yet another source of concern.

Traders are now waiting for next week's CPI and PPI reports, and Kitco says signs of rising inflation would likely translate to immediate short-term gains in gold prices. Over the longer term, gold should receive plenty of support as equities resume their downtrend, said Ross Strachan, senior commodities economist at Capital Economics.

Combined with weaker growth projections in both the U.S. and Europe, Strachan believes the path has been cleared for gold to reach $1,400 an ounce by year's end.