Gold and silver both rampaged to record highs on Wednesday. Gold is well over $2,000 an ounce, and silver bolted past $27.
Now, many are ready to call the top. To which I say “fat chance!” Gold is going higher, miners are undervalued and silver will lead the way.
That doesn’t mean both metals and miners won’t zig-zag, pull back, and test former overhead resistance as support. Of course they will. But to anyone with a clear head, that’s a buying opportunity.
I won’t take up too much of your time today. They say a picture is worth a thousand words, so let me tell this story in chart.
First, what’s the biggest driver of gold? Supply? Demand? Fear? Greed?
Nope, it’s none of those!
I’ve pounded the table about the three main forces before, and they’re only getting stronger.
Force 1: Negative Real Rates Hit a Record Low!
U.S. Treasury yields are falling to fresh all-time lows. And if you account for inflation — what we call “real interest rates” — they’re negative. In other words, rates on sovereign U.S. debt are so low, you’re paying the government for the privilege of buying their debt.
This is firing up gold, as you can see from this chart of the gold plotted against the real interest rate on the 10-year Treasury.
Just as gold hits a record high, real rates hit a record low. That’s not a coincidence.
Negative rates remove the opportunity cost of owning gold. One of the complaints bears make about gold is that it doesn’t pay interest. Well, now bonds don’t either.
The real yield isn’t the only driver for gold. Oh, heck, no. There’s also COVID-19, geopolitics, inflation worries, and good ol’ fashioned supply and demand, just to name a few. But the real yield seems to be the most important driver, at least for now.
Force 2: The Metals Are Cheap!
Gold was in a bear market for a long time. It is well off highs it hit in 2011. And compared to the S&P 500, it looks very cheap. The same goes for silver.
Here’s a long-term chart of gold and silver prices relative to the S&P 500 …
The ratio between the spot price of gold and the value of the S&P 500 Index was recently down 64% from a peak in August 2011. Meanwhile, spot silver was down 81% from its peak ratio to the S&P 500.
If you look at the right side of the chart, you can see both metals are just starting to make up lost ground. Silver is moving faster than gold. And that brings me to my third chart …
Force 3: The Gold-Silver Ratio Gives the Bull Signal
I keep bringing up the gold-silver ratio, but that’s because it’s such a great indicator. History shows us that as the gold-silver ratio peaks, this indicates peak bearishness in precious metals. As bullishness comes back into the market, investors start buying more silver than gold. And the gold-silver ratio falls.
And man, is the gold-silver ratio waving the bull flag now!
The blue line on this chart is the price of silver; the black line is the gold-silver ratio. The green dotted vertical lines are where rallies started.
Back in March, during the market’s liquidity panic, it took 124 ounces of silver to buy just one ounce of gold; now it takes about 77. That’s close to the five-year average.
You know what? As this bull market progresses, this ratio is going lower. That’s because silver, the drama queen of precious metals, outperforms gold on the upside.
What Should You Do Right Now?
With gold and silver rampaging, what should you do?
If you own gold, silver and miners already, sit tight and be right.
Subscribers did just that in my Gold & Silver Trader service this week. We took a 161% gain on Gold Fields Ltd. (NYSE: GFI, Rated C) call options, but that’s because those calls rampaged right through our profit target.
One thing all investors should keep in mind: There will be pullbacks. Those pullbacks are buying opportunities. Start whittling your pencil and start making your list of stocks to buy. That’s what I’m doing.
You can buy ETFs like the VanEck Vectors Gold Miners ETF (NYSE: GDX, Rated B-) if you are a casual investor, or you can roll up your sleeves, do your homework and buy individual stocks.
That next buying opportunity is coming. Be ready.
All the best,
Sean
P.S. — Metals and miners aren’t the only shiny investments. In fact, there are some shiny tech stocks that are ready to rip higher according to my colleague and Weiss tech-stock expert Jon Markman.
They’ll ride what he’s calling the Great Digital Transformation. And in the recently released FUTURE SHOCK 2020 summit, our founder, Dr. Martin Weiss, reveals Jon’s portfolio strategy that could have earned you an average total return of 159% PER YEAR for over a decade — a period which includes the Great Recession and the COVID-19 crisis.
If you haven’t seen it yet, watch it here. This information is timely, and it’ll be taken down soon. So don’t miss out!
