From Matt Badiali, editor, Stansberry Resource Report:
There’s a rare extreme setting up in the silver sector right now…
And it’s about to create a great opportunity for traders to make a lot of money.
Let me explain…
Silver and gold prices usually move in tandem. When gold prices go down, silver prices tend to go down too.
You can see the silver/gold price relationship in the silver-to-gold ratio – which is simply how much silver you can buy for the price of an ounce of gold. The higher the ratio, the bigger the difference in the price of silver and gold.
Over the past 20 years, the average silver-to-gold ratio has been 62. So you could typically buy an average of 62 ounces of silver for the price of an ounce of gold.
But occasionally, silver prices fall faster and further than gold prices… and the silver-to-gold ratio reaches an extreme.
We’ve seen this happen just three times in the past 20 years… when the silver-to-gold ratio peaked around 80. And after each of these times, silver prices soared to return the ratio back to normal.
Take a look…
The silver-to-gold ratio hit an extreme in 1995, 2003, and most recently in 2008. Silver prices went on to rocket 70%, 200%, and 420%, respectively, over the next two to three years.
And the silver-to-gold ratio is near an extreme again today…
Both silver and gold prices peaked in 2011 and then steadily declined. But while silver prices are down 67% from their 2011 high, gold prices are down just 38%. Today, it takes 74 ounces of silver to buy an ounce of gold. And the ratio is trending toward a historic high.
For the ratio to return to normal, either gold prices will have to fall or silver prices will have to rise.
I’m betting the latter will happen.
You see, silver is incredibly useful. The metal has more than 10,000 commercial uses. Inventors have filed more patents on silver uses than any other precious metal in the world.
Manufacturers use silver as a raw material in their production processes. It’s used in products like mobile phones, tablets, and computers. It’s also increasingly being used in the solar energy industry. According to Forbes, demand for silver from the solar energy industry will rise from 10% of the total demand for silver in 2014 to around 15% in 2018.
Demand for the metal from investors has also been strong recently, as they take advantage of low prices. For example, the U.S. Mint sold the most silver Eagle bullion coins ever in 2014.
And once silver is consumed, it is often gone forever. It costs too much to recycle the tiny bit of silver from each cell phone or casino chip. The world’s supply of silver scrap metal (silver that is recycled), fell from 23% in 2004 to 16% in 2014, according to metals-markets research firm Thomson Reuters GFMS.
There’s no guarantee prices will soar as much as they did last time, but based on history, we could see at least double-digit gains over the next two to three years once the silver-to-gold ratio reaches an extreme. Look to buy when this ratio gets close to 81.
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