Silver to $500? The Precious Metals Trade That Could Explode Next
Speakers
Michael Oliver
— Founder, MSA Research
Summary
Michael Oliver lays out a bullish precious-metals thesis. He argues silver is severely undervalued versus gold and could reach $300–$500, while gold and silver miners are historically cheap relative to the metals and near a major technical breakout. He expects the miner-versus-gold spread breakout to coincide with rising focus on the collapsing U.S. government bond market, driving monetary metals higher and making gold behave more like money.
- Silver is only about 1.5–1.6% of gold's price versus 6.5% in 1980 and 3.1% in 2011.
- Oliver targets silver at $300–$500, with silver already breaking above a 10-year relative range versus gold.
- Gold and silver miners are historically undervalued; XAU is about 8% of gold versus an old 18–25% floor, while GDX/gold is near a multi-year rectangle high.
- A breakout in miner-versus-gold spreads is viewed as a long-term signal that the monetary metals complex will 'go ape.'
- Oliver personally favors silver miners over gold miners, though expects both to do well.
- He expects a U.S. government debt crisis and collapsing bond market to accelerate demand for monetary metals.
- Gold may transition from cyclical rallies to becoming money in a new debt-crisis regime.
Ideas
Silver could reach $300 to $500.
Silver should trade at $300 to $500. Michael Oliver measures silver relative to gold: silver was about 6.5% of the gold price in 1980 and 3.1% in 2011 but is now only about 1.5-1.6%. Silver has already broken above a 10-year range relative to gold and held above key levels during the pullback from the January high. Gold has had two eight-fold bull markets while silver's current cycle is only about four-fold from its 2015 low, leaving room for silver to double or nearly five-fold just to return to its 1980 relative high. He expects silver to outperform gold.
Gold and silver miners are historically undervalued.
Gold and silver miners are historically underpriced relative to gold and are approaching a major technical breakout. The XAU index used to average about 25% of the price of gold, with a historical floor near 18%, but now sits only around 8%. GDX divided by gold is about 2.07% and is pressing against a multi-year rectangle near 2.2%; a breakout would be a massive long-term signal. Miners have already been outperforming gold for several years and are probably the most profitable sector in the U.S. stock market, and just moving back to the old floor could more than double the miners.
U.S. government bond market is collapsing.
Oliver warns that the U.S. government bond market is collapsing and expects a government debt crisis to become a central market focus once the miner-versus-gold spread breaks out. This is a negative setup for U.S. government bonds and a source of stress that could accelerate demand for monetary metals.
Gold becomes money during debt crisis.
Oliver expects the coming miner-spread breakout to be accompanied by more market focus on the collapsing U.S. government bond market and a government debt crisis. This debt-crisis regime should accelerate demand for monetary metals. He argues that this time gold will not simply rally and fall back; gold becomes money, supporting a bullish stance on gold.
Prefer silver miners over gold miners.
Michael Oliver personally favors silver miners over gold miners, though he expects both to do well. Silver has already emerged above a 10-year range relative to gold and held above key levels even during the pullback, giving silver miners more relative upside. He notes that miners have been doing much better than gold over the last several years despite most investors still viewing them negatively as 'dogs.'
