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Profit Confidential (www.ProfitConfidential.com), an e-letter of Lombardi Publishing Corporation, a 29-year-old consumer publisher that has served over one million customers in 141 countries, is weighing in on the current silver prices, saying that prices are currently undervalued and that two major indicators show silver prices could double from their current levels of near $16.00 per ounce.“Historically, one of the most widely used and accurate tools to value silver has been the gold-to-silver multiple. This ratio tells us how many ounces of silver it costs to buy one ounce of gold,” says economist and lead contributor Michael Lombardi. “Currently, the gold-to-silver multiple sits at 74; it takes 74 ounces of silver to buy one ounce of gold.”
Lombardi explains that since 1970, the gold-to-silver multiple has averaged 55.5. That means silver prices would have to rise to $21.00 an ounce for the historical average price relationship between gold and silver to be restored.
Going back further, the 200-year average for the gold-to-silver multiple is 37. In this case, silver prices would have to rise to $36.00—that’s 125% above their current price—for the 200-year price relationship between gold and silver to be at the restored level.
The lagging gold-to-silver multiple isn’t the only multiple that suggests silver is undervalued. Basic economics say so as well. As is the case with gold miners, silver producers are also struggling and production is in jeopardy. For example, in Canada, in the first three months of this year, mines produced 97,265 kilograms of silver. In the same period a year ago, they produced 107,859 kilograms of silver—a decline of 10% in the production of silver year-over-year. (Source: “Production of Canada’s Leading Minerals,” Natural Resources Canada web site, April 2015; http://sead.nrcan.gc.ca/prod-prod/PCLM-PPMC/PDF/MYMONTHLY.pdf.)
“It’s basic economics; when prices decline for a commodity, producers and manufacturers have less incentive to produce and manufacture. On the demand side of the gold supply/demand equation, demand remains strong,” Lombardi adds. “India, the country that competes annually with China for the title of world’s biggest gold importing country, is a huge importer of silver as well. Over the past few months, there’s been a significant increase in silver imports into the country.”
“I like to look at an investment when it is down and out. Lack of investor interest, bearishness towards the metal, and depressed prices all qualify silver as a down-and-out investment right now,” Lombardi observes. “Over the long term, I believe silver will provide better gains to investors than gold. For silver to go up to 100%, it will have to go to $32.00—a level that has been seen many times before. For gold to go up to 100%, it will have to go to over $2,200— a level it has never hit.”
“I am paying close attention to the senior silver miners. Although they are not as profitable as they used to be, they have made strides in reducing their costs and improving their core operations,” Lombardi concludes. “As silver prices start to rise again, the stock prices of senior silver producers could take off.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit http://www.lombardipublishing.com/customer-service.html.
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