The first question you must ask is how cheap is cheap? One person may regard silver cheap below $16 while another person may think it’s expensive. As Warren Buffett once said, “price is what you pay, value is what you get”. So, where is the value in silver today and is it cheap?

Silver/Gold Ratio

The current silver to gold ratio indicates that silver is cheap. Historically the ratio was 16/1, meaning it took 16 ounces of silver to buy 1 ounce of gold. In fact, this was near the ratio used for the US bi-metalic standard of the 19th century. This ratio was even once the ratio of silver to gold in the earth’s crust. Today the mining ratio is much lower. Mining industry experts speculate that there is approximately 8 ounces of silver for every 1 ounce of gold in the earth’s crust. In other words, the ratio should be nearer to 8/1.

The current ratio is over 90/1. You read that correctly. As of this writing the ratio of silver is at an extreme level. In a recent article posted on King World News, gold and silver expert James Turk mentions that out of 11,186 trading days on the Comex since January 1975, the silver traded at a ratio of over 90/1 only 82 days. Think about that window; its 82 days out of 45 years.

Real Physical Supply is Low

Supply is lower than ever. The Comex is using emergency measures known as “exchange for physical” to obfuscate the lack of supply. According to Comex Expert Harvey Organ, 4Xs annual production has been funnelled into channel. All it is a paper transaction where they use serial forwards in London where every 13 days it turns over, which avoid reporting to the regulators. Those holding these forward contracts are essentially in line for physical product. The process, to those who can dig enough to know about it, indicates a Comex default.

Physical delays are the norm now in the retail business. Anecdotally, Guildhall is seeing supply issues in the retail business all the time. Whether it is companies going out of business and failing to deliver, like Rebublic Metals, or Royal Canadian Mint unable to keep up with demand for Silver Maples (summer 2017) and 10 Oz silver bars (summer 2019). We are experiencing constant delays for products like US Silver Eagles and 100 Oz PAMP Suisse bars and they are not back ordered.

Paper Supplies are Still Too High

Meanwhile paper investments in silver (ETFs, Certificates, etc.) make it appear as if there is more supply than there really is. Even still, the effect of derivatives on the market is like a steam valve to the market. It relieves pressure on supply.

The current 90/1 silver/gold ratio strongly indicates that silver is tremendously undervalued. We are currently experiencing shortages on real, physical silver and delays have become a norm. There are more ETFs and Certificates out there making it appear as if there is more supply than in actuality.

Dovish Fed

Remember when the Fed was raising interest rates and paying down it’s balance sheet? Remember how great the economy was? Seems like a 10 months things can change… drastically. September was the last time they raised rates .25 basis points to 2.5% and the last time the Fed raised rates? 2006. So here we are 2.5% and the Fed is contemplating lowering rates and lower rates accompanied by monetary stimulus equals a lower US dollar. To maintain maximum purchasing power investors are now turning to the inflation hedges of gold and silver. As this problems of dollar devaluation is come to be understood as a wealth tax, investors will want to acquire bullion while their dollars still have a perceived value.

With all of this, at $16 an ounce, do you believe silver is cheap? Can you see where the value is? At less than the cost of a magazine and a latte, silver is dirt cheap. Given the recent breakout in gold above $1,400 and the recent swing up in silver above $16, this could be your last chance to get silver cheap.

To view silver products available at Guildhall go to www.guildhallpreciousmetals.com

Jeremy Wiseman

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