Silver: A Generational Buying Opportunity?

As of April 9th, the gold-to-silver ratio reached a rare 100:1, meaning gold is now 100 times more expensive than its industrial counterpart. Due to this historically rare price disparity and in light of the charts that follow, I opted to boost our firm’s silver exposure.

The first time this occurred was at the end of the brutal bear market that began after the Hunt Brothers cornered the silver market and drove it towards $50/oz in 1980 to the low seen in 1991. When gold was 100X silver in 1991, it literally marked the end of the bear market in silver and it went on to rise over 60% in the following two years.

The second 100X event occurred in March 2020, marking a significant bottom for silver. After peaking at just under $50 per ounce in 2011, silver entered a prolonged bear market, eventually hitting a low in March 2020 amid the COVID-19 pandemic. With gold trading at 100 times the price of silver at that bottom, silver then launched into a remarkable rally, surging over 140% in a matter of months.

On April 9th, that rare milestone was hit once more, indicating that silver is historically undervalued compared to gold. While this ratio could certainly climb higher—implying gold might continue to outpace silver—I believe it still presents a unique opportunity when viewed through a long-term historical lens.

The recent move north of 100x didn’t occur after a prolonged bear market, but rather a persistent slump in silver relative to gold and it occurred right when it needed to: at the 2020-2022 support zone. Failure of silver to hold here could have opened the door to the low $20s. Now that support has held, I think silver plays catch up to gold and rallies to its earlier highs this year (~13% upside) and ultimately, in the next 12-18 months, may hit its all-time high near $50 which is 60% higher from current levels. Whether these moves materialize remains to be seen, but given how stretched the gold-to-silver ratio is, silver appears particularly well-positioned right now.

Need a Catalyst? How About an Old-Fashioned Short Squeeze

The catalyst for silver to catch up to gold could be a short-covering rally. The iShares Silver Trust (SLV), one of the largest silver ETFs, is currently experiencing its highest short interest on record. A similar situation occurred in 2011 near the bubble peak, when shorting paid off for traders. However, another parallel can be drawn to 2022, when high short interest coincided with a bottom in silver prices, helping to fuel a near doubling a near doubling in prices since then. A short-covering rally in SLV could provide a significant lift to silver in the near term.

We are seeing a similar setup in the Sprott Physical Silver Trust, which is just over 1/3 the size of SLV. There we also see a dramatic spike in the short interest level and should silver begin to break out, these silver products may potentially see dramatic price increases in the months ahead.

Summary

After Trump’s 90-day tariff pause, the S&P 500 jumped over 9.5%—its biggest rally since 2008—while the gold-to-silver ratio hit a rare 100:1, a milestone seen only three times in the past century. With gold 100 times costlier, silver looks undervalued, potentially rallying 13% to this year’s highs or 60% to $50 over the next 12-18 months. Record short interest in the iShares Silver Trust (SLV) and Sprott Physical Silver Trust could fuel a short-covering rally if the historically stretched gold-silver ratio indeed favors a catch up in silver prices. Given the above, I’ve increased our firm’s silver exposure, viewing it as a potentially rare long-term opportunity.

Written by Christopher Puplava, CRPC®
Chief Investment Officer, Financial Sense® Wealth Management

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