Business and finance background. Stacks of golden and silver bars
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Silver tracks gold. Some investors see it as the fast horse in the precious metal race. My model is different. Gold and silver have been retail assets for a very long time, but now gold is a government asset, while silver remains a retail asset. Gold is being driven by government purchases, and silver has lagged – but now retail is piling in, and the silver horse is running.
This long-term chart gives one way of looking at the potential run silver can have:
The long-term silver and gold charts
Credit: ADVFN
In the last ten years, gold’s outperformance hasn’t been so marked, but it took the catch-up repricing of 2020 to close that gap:
Silver caught up with gold in 2020
Credit: ADVFN
It is quite possible we are in such a catch-up period.
So this is where I say: although I’m up to the gunnels with precious metals, I am not a precious metal maxi. I’m simply invesing in what I see as the current trends. The key trend to me is the awful sabre-rattling that is going on. Gold is for war, and precious metals follow.
Yesterday, Trump tweeted: “Please give my warmest regards to Vladimir Putin and Kim Jong Un as you conspire against The United States of America….” That is about as big a buy signal as you can get. And then, when you read it again carefully, if you care to, it’s worse.
Who is giving them President Trumps regards? Who is the “you?” Xi?
As this drumbeat of world war continues, governments must lay in gold, whch means it will appreciate in real terms. Silver will follow.
So how far can it go? I see $4,000-$5,000 gold as the next target, and that’s $50-$60 silver. Then there is a troubling fact I can’t quite absorb. Don’t worry, it’s bullish.
They mine roughly 3,200 tonnes of gold and 25,000 tonnes of silver. Now, these numbers are rounded, but let’s say 8 to 1. Let’s make the math easy – let’s say 10 to 1, the old ratio long back when Nero was playing the lyre. The production ratio is incredibly out of whack with the price. Yes, that’s the wonder of demand and supply for you, but if retail follows government into precious metals, retail is going silver – and in the end, retail is a sleeping giant.
As such, in a world where the U.S. believes China and Russia are conspiring against it, gold and silver seem a one-way bet, with silver as once again the fast horse.
Silver $100 an ounce? Unless there is de-escalation, silver is heading there.
Click here to watch a video where I talk about silver being the sleeping giant.