The analyst “Dumb Wealth” at SeekingAlpha considers silver (XAG) to be quite undervalued, and thinks a rise of 260% appropriate for the precious metal for a correct price of around $62.
He bases this outlook on three points (two of which are almost the same point): government fiscal spending to combat the economic damage caused by the coronavirus; the subsequent inflation that could result from that spending; and finally, the current disparity between the ratio of gold and silver respective to historical rates.
We have covered the first two points on this site often; so we will concentrate now on the ratio point.
Gold-to-Silver Ratio Is Off
By “ratio”, Dumb Wealth means the value/market price ratio between gold and silver, which is currently about 100 flat ($1750 gold / $17.50 silver). This ratio has, however, gone as low as 14.14 in the past few hundred years; and throughout the entire tracked history of this ratio, the average ratio is about 28.19 according to Dumb Wealth.
This implies a more correct silver price of $62 ($1750 gold / 28.19).
Dumb Wealth also points out a physical ratio between the two, referencing the CRC Handbook of Chemistry and Physics to emphasize that the ratio of silver to gold in the Earth’s crust is 18.75.
We covered yesterday the possibility that silver could easily reach its previous all-time-high of $50, if it decides to follow its big brother gold up. Fears of future inflation are presumably stoking gold’s return to popularity.
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