Alternative Investments

A Speculative Case for Buying Silver

Few people remember that the 2000s were largely a dead decade for stock returns.

Between 1999 and 2009, the Dow Jones Industrial Average gained just 14%…

The S&P 500 Index dropped 9%…

And the Nasdaq fell 40%.

This resulted in a brutal decade for stockholders. But gold and silver investors recall a different story.

During the same decade, gold’s spot price rose from $168.61 to $638.22 per ounce – a 279% return. Likewise, silver prices rose 209%, from $266.26 to $822.51.

What made such a powerful metals rally possible?

Gold and silver have been regarded as sound money for millennia. And investors still regard them as an insurance policy against potential financial meltdowns.

This means that economic pessimism drives demand for precious metals. And since supplies are highly limited, this in turn drives up their market values.

And that, in part, explains the demand for these metals in the 2000s. It also shines a light on more recent gains in gold and silver prices.

Consider that over the past year, the International Monetary Fund has cut its global GDP forecasts four times. Likewise, the Federal Reserve has lowered its 2019 GDP forecast for the U.S. We also experienced two major corrections in U.S. stocks last year alone, ending in the worst December in a lifetime.

While the markets have since rebounded strongly and sentiment has turned bullish, this is the exact moment when prudent investors begin to invest in crisis assets. In particular, I believe there’s a strong case for buying silver.

The chart below shows the gold-silver ratio. Historically, when this ratio peaks, it signals a buying moment for silver.

Line graph - this ratio signals a buying opportunity in silver

The price of silver remains near a multiyear bottom despite seeing momentum over the past several months. And history suggests its price won’t stay low for long, as this momentum is bound to continue.

Over the past 30 years, these gold-silver ratio peaks have preceded an average 18.3% gain in silver spot prices over three months, a 22.1% gain over one year and a 106.1% gain over three years.

If history repeats itself, silver traders could see significant gains in the months and years to come – especially if the anticipated economic slowdown becomes a reality.

Good investing,

Anthony