Silver Has its Best Performance in More Than Two Years

It was about this time two years ago that silver seemed unstoppable – since peaking near $49 in April of 2011 though, the buzz around silver has been mild. During the last couple of weeks however, we have seen some exciting activity in precious metals, especially silver.

With silver hovering at around $28 per ounce in the beginning of 2013, we began wondering if this correction was over. But out of the blue (…at least it seems), one last phase in the correction hit, with silver dropping to around $20 per ounce, a level not seen since 2010. It certainly appeared as though the “bears” were in the driver’s seat. Despite an apparently gloomy outlook for the metal, physical demand has remained very strong, with 1st quarter sales for American Silver Eagles shattering records.

As we look forward to sending the kids back to school, football season and a cooling of temperatures, we’re seeing things really heat up in the silver markets.

So far this month, silver has performed extraordinarily well. The week of August 12th saw a 14% gain in silver to above $23.50. And though it seemed to take breather on Monday ahead of the Fed’s policy announcements, silver has managed to remain above a key support level of $23 per ounce. As a percentage, silver has risen much faster than gold, which saw a more modest 4.5% rally for the week of August 12. This has led to a drop in the gold-to-silver ratio to 58:1.

As of this writing (Mon. 08/26), the base silver price stands at just over $24.

This in fact puts silver in bull market territory off its lows as many factors are coalescing to contribute to this rally…

One positive sign are the Exchange Traded Funds, or ETFs. You may remember from one of our prior posts that April’s quick decline down was driven in large part to swings in the “paper” markets for silver, which include ETFs. Large investors like George Soros were selling their ETF shares, which of course induced a panic-like selling frenzy.

That’s all changed now – over 1,400 tonnes of silver have flowed IN to ETFs in the last six weeks. Physical demand for silver bars and coins has in fact increased and is on track for another record breaking year. So far this year, sales for Silver Eagles are up 47% over 2012!

Are we in the beginning stages of another 2011-type rally?

That’s a question we’ve been hearing a lot. If the economy is “recovering” then silver should do well because of robust industrial demand. But if higher interest rates stall any kind of recovery, especially in the U.S., some may look to silver as a safe-haven investment.

Investors will also look to gold if the non-recovery scenario plays out, but as we’ve seen in the past, as gold goes up, more and more people start looking to silver since it’s more affordable and possesses the same fundamental qualities.

One other fact that caught our attention was a little history on the price of silver. If you’ve browsed around our blog and knowledge center or other resources, you’ve likely heard of the gold and silver bull market of the 1970s, which culminated with a dramatic rise in both metals in early 1980 before a dramatic correction.

Silver’s price is an anomaly in that it hasn’t hit the 1980 high since, even in 2011. This leads some to claim silver is way undervalued, especially considering the current gold-to-silver ratio – which basically means how many ounces of silver it takes to buy one ounce of gold. This ratio has sat at around 60:1 for most of this year, but if it returns to its historical average, we could see a dramatic rise in the silver prices over the next few years.

What are your thoughts?

Do you think silver is back in rally mode?

If so, how high do you think it will go this time around?

If not, will silver languish in the $20-$25 range, or will it drop even further below $20?

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