Silver prices to go higher: Analysis on Dow-Silver ratio

Whether silver is getting manipulated or not, who is manipulating the prices, why are they doing it, when will this stop? These are questions worthy of discussion but more important than this to recognize the trends and try to take advantage of the situation placing you in a better situation financially.

I did some digging around on the internet and found this chart of Dow to Silver ratio - see below.

This chart depicts the Dow-Silver ratio from 1973 to present time (as of May 21, 2017). In plain terms, it means how many ounces of silver it will take to buy 1 unit of Dow. For example, if Dow was at 10,000 and silver was at $20/oz, then the ratio would be 10,000/20 or 500. At the lowest point in 1980, the ratio stood at 25:1 with the peak coming around 2001 when the ratio stood at 2500:1. As of May 21, 2017, the ratio stands at 1241:1.

So what will be the ratio going forward?

We know that due to FED's various QE programs, the money is flowing into stocks. Also through relentless hammering of silver prices like we saw it earlier this month where silver was singled out for hammering for consecutive 17 days, is creating a perception that investing in silver is a bad idea. As long as these two factors remain in play the ratio is not likely to change in favor of silver.

What are new factors that will shift the balance?

There are several factors which will shift the balance. First, the geopolitical tensions. We are seeing increased number of events which disrupt the normal flow. Precious metals tend to react to these in a favorable manner. Second, a possibility of major tax reforms, already baked into the stock prices, when fails to materialize will put downward pressure on stocks. Third, declining dollar index will make the imports more expensive, impacting favorably the prices of silver. Fourth, the inflation scenario which is starting to show its ugly head will cause the prices of silver to go up as traditionally precious metals have always been viewed as a hedge against the inflation. Last but not the least, increase in interest rates should impact the prices of silver but in last two increases of interest rates, we saw just the reverse.

So where the price will be by December 2017?
If Dow continues to rise at the current rate and assuming a historic ratio of 500 which was the ratio in 1971 just prior to Nixon's decision to end the gold/dollar convertibility, the price of silver has to rise to $43/oz.
If Dollar makes a correction of about 20% and assuming the historic ratio of 500, the price of silver will be around $34/oz.

I know this is not what most people are expecting but this is what the data shows. This analysis could be incomplete as there is always that emotional energy, associated with precious metals, which is difficult to quantify. However, I do believe that when the balance is being restored the pendulum tends to swing to extremes and based on ball-park retracement analysis, the ratio could go as low as 75. This will make the silver price jump to around $280/oz (assuming dow remains where it is today).

In conclusion, no one can accurately predict the price and the timing of it but it surely looks like that the prices are going higher at least by 100% from today's prices.

What are your thoughts? Please leave the comments below and upvote the post if you like it.