Tuesday , 7 April 2020

Silver Should Be $136.67/ozt From A Supply Perspective

…Today the gold:silver ratio is about 75:1, based on a gold pricefine silver fine gold of about $1230 per [troy] ounce, and a silver price of $16.35. This is fairly high even by modern standards as the long-term average over the past several decades is about 50:1 and would suggest that silver should increase in price relative to gold in order for the ratio to return to its historic average. A ratio of 50:1 would imply a silver price of $24.60 based on a gold price of $1230.

The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by Simon Black (SovereignMan.com)

Now, all of this is an argument that many of us have heard before but I did learn something over the weekend from a mining CEO; he told us that the current mining production ratio between the two metals is about 9:1 [or]…that 9 [troy] ounces of silver are mined for every 1 [troy] ounce of gold that’s mined.

A Supply/Demand Perspective

According to the Silver Institute, demand for silver hit an all-time high in 2016 [but, as mentioned above,] the new supply of silver is only 9:1. In theory if the new metal supply is 9:1, then the price should be 9:1 (which would be a silver price of $136.67).

Obviously, that’s a purely academic postulate; reality rarely conforms to theory – and the mining CEO wasn’t projecting a $136+ silver price – but it seemed clear to him that there’s an unsustainably wide gulf between the gold:silver price ratio versus the gold:silver supply ratio, especially when silver demand is at an all-time high.

Commodity prices tend to move dramatically when the market realizes there’s a serious supply/demand mismatch – and that seems to be the case with silver right now – yet while it would be silly to expect $100+ silver – there are certainly credible reasons why the ratio should close the gap and move MUCH lower.

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