3 Reasons Why Silver Can Beat Gold in 2020

Now that gold has rallied to multi-year highs, it’s time for silver to follow suit. Three factors may propel the grey metal higher in 2020.
gold vs silver
Gold's breakout has created favorable conditions for silver to follow suit. There are at least three reasons why the grey metal could outperform gold this year. | Image: shutterstock.com
  • Silver is undervalued when you look at the gold-to-silver ratio, which now stands at a staggering 1:86.
  • JP Morgan has been manipulating the markets, and 2020 will be the year more of its top-level employees are convicted.
  • As countries around the world make efforts to stimulate growth and manufacturing, demand for silver could skyrocket.

Recent geopolitical turmoil between the United States and Iran has sent the gold price soaring. Silver has yet to follow suit and remains below the September 2019 highs. Silver has been consolidating for several years and remains well below all-time highs of roughly $50 per ounce.

Right now, there are three good reasons why silver could explode past the $20 per ounce mark in 2020.

Gold to Silver Ratio Points to Undervaluation

Due to the strong rally in gold’s price, the gold-to-silver ratio has seen a significant spike recently. Now, the ratio stands at a staggering 1:86. This means it would take 86 ounces of silver to buy an ounce of gold.

Gold to silver ratio
The ratio comparing the two precious metals looks overstretched. | Source: Goldprice.org

Historically, whenever the ratio spikes, it’s followed by a retracement back to its average levels. Over the last 20 years, the average level has been around 1:60.

The retracement is a time-tested indicator and was seen in the previous century as well. For instance, in 1942, when the ratio stood at 1:97, it quickly declined to 1:43 in 1946. By 1968, the ratio had fallen to 1:18.

Gold to silver ratio retracement
The ratio has a habit of reverting to the mean. | Source: Macrotrends

When the ratio retraces once again in the future, it will coincide with a spike in silver prices.

JP Moran’s Rigging Days are Going to End Soon

JP Morgan has faced accusations of manipulating the bullion markets in the past. Since 2011, the bank has hoarded a staggering 350 million ounces of silver, which accounts for about 38% of the world’s production. It’s way more than their officially reported figure of 50 million ounces, according to legendary precious metals analyst Ted Butler.

JP Morgan Buying Silver
JP Morgan has been loading up on the forgotten precious metal. | Source: Goldcore

At the same time, the bank held the largest short position on silver in the futures markets. It has suppressed the silver price with access to unlimited free money, as Ted Butler claims.

Recently, many of JP Morgan’s top-level employees were charged with spoofing the bullion markets. Some pleaded guilty as well, but the investigations are still ongoing. You can expect more convictions from the DOJ in 2020 as the fraud unfolds. The eventual expose will enable the supply-demand balance to restore to its natural levels, thereby pushing silver price higher.

Shortage Will Drive Silver Price to New Highs

Silver’s use is directly proportional to the growth in production of technological devices. The precious metal is used in the production of CDs, calculators, catalytic converters, RFID chips, mobile phone batteries and much more.

As the world becomes more tech-savvy, demand is only going to rise with it. Most of world’s mined silver is dumped as garbage, and it is more expensive to extract it from the dump than it is to mine it from earth’s crust. In comparison, 98% of gold mined throughout the history of mankind is still in existence in some shape or form.

Countries mining Silver
The supply of silver is in decline. | Source: GoldSilver

This decline in supply will eventually cause a crunch given that global demand for silver keeps rising. In 2019, the industrial demand stood at record highs.

Demand for silver increasing
Demand for silver fabrication rose six years in a row. | Source: GoldSilver

As central banks and the ultra-rich load up on gold, another precious metal is being ignored. The next major silver bull market could be on the horizon, just like Robert Kiyosaki said in a recent interview with Kitco.

When asked how the Rich Dad, Poor Dad author would invest $100,00 in the next decade, he said:

I would invest it in U.S. Eagles today, not tomorrow. In my opinion, silver is the most under-valued, lowest risk, best investment of all asset classes. Why buy stocks and bonds when both are in bubbles? I have been accumulating silver coins since 1964.

 

Disclaimer: This article expresses the opinions of the author and should not be considered trading or investment advice from CCN.com.

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Ayush Singh

Ayush Singh

Ayush is a financial blogger and a swing trader. He has roughly four years of experience covering the U.S. stock market and has consistently featured on Tip Ranks' list of top performing bloggers. He is based out of Indore, India and is also managing the portfolios of several local retail clients. You can email him on Ayush.Singh93@outlook.com

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