Silver Bullion: A Week to Remember

The first couple months of 2024 were all about gold as it continuously made new all-time highs on the back of central bank purchases turning into a mass rush into the shiny yellow metal by Eastern citizens alike.  Since that epic run to start the year for gold, the sector quieted down a bit and many wondered if that was the end of the historic run to new highs, or if it was only the beginning.  From our perspective, we had written that until the lag in silver turns into a run of its own as it follows gold (as gold often leads the way when it comes to price discovery to the upside) precious metals are still just getting started due to elevated inflation and poor geopolitical relationships playing themselves out, putting further stress on the global financial system.

This past week, we got confirmation of our suspicion that silver had yet to wake up as it previously had repeatedly bounced off the $30 USD/oz mark and would drop back down.  Even so, as we had said many times previously, the moves in silver will often be far more volatile than gold, so while you may see prices drop quicker on certain days, once silver finally breaks through the $30 USD resistance mark, the overall moves higher will also be much larger than gold on a percentage basis.  This is why we have argued that it is actually silver that is the best buy at present, this being largely based on the Gold to Silver Ratio (GSR) we have written about in the past.  To quickly refresh your memory, historically, silver comes out of the ground at a 7:1 ratio to gold and has seemingly been priced between 20-40:1 through modern history.  Meaning every 20-40 ounces of silver is equivalent to 1 ounce of gold.  That said, the current Gold to Silver Ratio is about 76:1 at the time of writing.  When we had initially highlighted silver as the better purchase at the beginning of the year, this ratio was near 90:1, and since that point in late January of 2024, silver has outpaced gold gains by over 15%.  What is funny, is that during this time, gold has been getting all of the attention due to reaching all-time highs, but silver has been the winning horse on a percentage basis. Even at current prices, silver is on sale in comparison to gold as the Gold to Silver Ratio is still 2-4x higher than the historical averages.

Turning our attention over to silver, silver has amassed a whopping 33.08% gains since the beginning of the year (well keeping up with inflation as advertised), again, nearly double the gains seen in gold which sits up 17% pretty well on the dot.  What is incredible about what silver accomplished this past week, is that once it broke through the pesky $30 USD/oz resistance line, it did not just tumble back down below, it showed immense strength blasting through $31/oz, then $32/oz.  Within 4 days, silver had shot up over 9% and had claimed $30 USD/oz handily, turning that level into price support for an even further run.

What should be noted, and you can find this in our previous newsletters in more detail, is that the arbitrage that China had created moving silver and gold from West to East had silver priced in Shanghai over $30 USD/oz well before United States prices moved to catch up.  What is interesting however, is the Shanghai Gold Exchange price in China did not just stall and let American prices catch up… the Chinese price continued even higher showing that they believe silver IS STILL undervalued by a large margin even after gaining 9% in 4 days, and 33% in 5 months.  Closing out today’s trading session, the Shanghai Gold Exchange has silver priced at $35.84 USD/oz, which is 13.35% higher than current American prices of $31.62 USD/oz even after such a historic week.  Previously, before American prices shot above $30 USD/oz (for the first time in over 13 years!!)  China’s price sat around 8-10% higher, putting constant pressure on American prices pushing them higher.  After American prices shot up 10%, Chinese prices responded by shooting upward to close up another 13% higher than American prices.  The intraday high was another story, as in Shanghai silver reached a staggering $39 USD/oz before settling above $35 USD/oz.  Even still, at $39 USD/oz, Shanghai at one point had silver selling 23.34% higher than in the United States. China clearly sees the value in silver, and at current prices, are happy to buy as much physical silver as they can.

There is no doubt that we will be keeping a close eye on how prices continue to move between China and the United States, but what is interesting still, is how gold received all the attention because of the psychology of an asset hitting all-time highs.  People usually do not want to miss out, and so rush to buy the more expensive asset, while silver remains still WELL below its all-time high from 1980 and has only become a more vital asset to human advancement due to its necessary use in green technology and technology in general.  On the Canadian side of things, silver has broken through the psychological level of $40 CAD/oz, making us wonder if that broken barrier will spur further buying out of fear the $50 CAD/oz level is next, which we suspect it is.  Even at current prices, history says silver is still heavily discounted, and the way India and China have been purchasing silver and pushing the price higher, we believe the world as a whole will begin to wake up to how important silver is to a nation and its people alike, and rush to get some of their own, which will result in even higher prices than we are seeing today.