Thank You, Mr. Market: Right Now, the Cheapest Silver, Relative to Gold, in 25 Years

Tea leaves. Voodoo dolls. Psychic mediums. Even, to a large extent, the endless rabbit hole of technical analysis.

These are not what we turn to when we attempt to gauge just how under or overvalued gold and silver are at any given moment.

First off, if you have no precious metals in your investment portfolio, it is always a great time to buy Gaining instant exposure the wide array of benefits precious metals ownership provides is a must for any diversified investor. Need convincing? Here are The Top 10 Reasons to Own Gold and The Top 10 Reasons to Own Silver (click the links for full articles with an in-depth discussion).

Secondly, gold and silver are so valuable because they confer the same benefits to those who hold them today as they have to those who held them thousands of years ago. The fixed nature of these benefits, to a large extent, is why we own precious metals.

So when the price goes up, it feels nice if you own them, but those benefits are then more expensive to buy. But when the price goes down, it’s painful if you own them, but those benefits are then cheaper to buy. And ultimately, that’s what we want: to gain as much exposure to gold and silver’s unique qualities as we can for as little fiat money as possible.

Finally, aside from the above general rule of “I’d rather pay less than more, given the choice,” we are not big believers in market timing.

With one notable exception: The Gold/Silver ratio.

For whatever reason, every time gold has been worth more than 80x silver, it has marked a great historical buy opportunity for silver. It has meant silver has been cheap.

We pointed this out the three previous times the gold/silver ratio hit 80. And silver rallied all three times. It always has. And those rallies were decent, from the low/mid $16s to the low/mid $17s.

But now? The gold/silver ratio hit an eye-watering 86.71 yesterday, a 25-year-high. And silver is fumbling around near $14 even.

We don’t overthink the gold/silver ratio. The chance to buy silver at a proportional 25-year low vs. gold – at levels presenting an opportunity unavailable at any point since 1993 – AND a nominal double-digit percentage discount to its recent ‘buy low’ prices (all three of which, again, saw nice rallies from the low/mid $16s)?

Slam dunk. Full stop. Time to buy silver.