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The Coming Reversal in Silver & Gold’s Ratios to the Stock Market Will be Shocking

Jeff Clark, Senior Analyst, 
APR 14, 2022

Silver and gold were up in Q1, and stock indexes were down, so their ratio to one another saw a big shift, right?

No! The change is barely discernible. In fact, in the big picture, silver and gold remain near all-time lows relative to the stock market.

Gold Relative to Stocks: Deeply Undervalued

Here is gold’s ratio to the S&P 500… the red circle is from last Friday, April 8.

Gold/S&P 500 Ratio Still Near LowsThe current ratio is basically where it was in 2006! Relative to the stock market, gold remains deeply undervalued.

I marked the peaks this ratio has hit before. To reach those prior highs it would have to rise…

  • Nearly 4 times to match the 2011 high
  • Over 5 times to reach the 1987 peak
  • Almost 7 times to match the 1974 high
  • And over 17 times to reclaim the 1980 peak!

Since it’s a ratio one asset could move more than the other, but either way we know the direction for both: gold higher, stocks lower. This isn’t exactly surprising, since gold tends to hedge stock market declines.

Once a reversal gets underway, the move in both assets would be substantial if it matched any of the prior peaks.

Silver’s Ratio to Stocks: Historic Opportunity

Here’s the ratio for silver. As you can see, despite its rise in Q1 and the decline in stocks, in the big picture it has barely budged and remains near all-time lows.

Silver/S&P 500 Ratio: Near Historic Lows

Only at the beginning of the new millennia has silver’s ratio to the S&P been lower than it is right now.

You can see where it peaked in the past. Compared to today, the ratio was…

  • 6.3 times higher in 2011
  • 16.6 times higher in 1983
  • And a whopping 74.1 times higher in 1980!

The point here couldn’t be plainer. If history were to repeat and the ratio returned to any of these prior levels, it means stocks are headed much lower and silver a lot higher. Again, it’s a ratio so one could move more than the other, but the direction for each would be unequivocal: silver up, stocks down.

And since the ratio is sitting near historic lows, the reversal is likely to be breathtaking, even more than gold’s.

No Pretending or Wishful Thinking Needed

Remember, these are not pretend ratios, model projections, or wishful thinking on my part. All these ratios have occurred before.

And given how stretched they are to the downside for both gold and silver, the odds of them moving significantly higher are indeed very strong.

  • When gold and silver’s ratio to the S&P 500 begins to reverse, stock losses will mount, while gold and silver gains grow. Based on history, the moves will probably be substantial for both sets of investors.

And here’s an interesting question: once the reversal in this ratio picks up steam, how do you think the average investor reacts? Would they dump at least some of their stocks and run to gold and silver?

Throw in the fact that the average investor crowds in near the end and this reversal could see a serious spike.

I hope you’re not one of those that end up selling your losing stock positions near the bottom and buying gold near its top. Do that and you’ll end up a victim of the wealth transfer—and indirectly help me and my friends become richer.

Instead, given that bull markets don’t last forever, and that it takes longer to recover from crashes than what many investors think, might it be wise to allocate a portion of your portfolio to gold now?

If you don’t own a meaningful amount of silver and gold, I encourage you to buy some now. At the current ratio, your risk appears to be very low.

You can even sidestep high premiums for both gold and silver.

And if you don’t buy now? Well, like Mike Maloney says, a wealth transfer is coming, and you’ll either be a victim or a victor.

Given where this ratio sits, gold and silver investors are destined to be the victors.