The world economy is undergoing massive changes, as a result of the coronavirus pandemic.  Cities are imposing and/or expanding orders for citizens to stay home, causing a large number of businesses to shut down.  In addition, governments across the world are implementing monetary policies ranging from reduced taxes to handing out money to individuals and corporations.  Amid economic chaos keen investors are finding great opportunities.  Learn why investing in silver after the 2020 market crash could prove to be an amazing opportunity. 

2020 Market Crash Background & Government Intervention

I won’t spend much time on reviewing the 2020 market crash, as I’ve recently written two articles that touch on this subject.  But, in short, the 2020 market crash can be attributed to an over extended bull market that was due for a correction. 

The coronavirus pandemic suddenly became a catalyst for selling that turned into panic and eventually into a market crash.  Furthermore, panic was exacerbated by the oil price wars between Saudi Arabia and Russia. 

The US government and the Federal Reserve raced to attempt to prop up the economy by announcing bailouts, cash infusions into the markets, and all other sorts of monetary interventions.  Unfortunately, the US government doesn’t actually have money to do all these things.  Instead, the US government will print paper money.

As I’ve mentioned extensively in previous articles, printing money is not a viable long term solution.  Instead, all this government intervention is likely to cause inflation.  And when inflation goes up, the US dollar loses value. 

What to do in such situations?  The normal thing to do is to own safe-haven investments such as bonds and gold.  However, bonds are still just pieces of paper.  Gold on the other hand has a proven track record as a safe-haven, as it can’t be manufactured.

Reasons to Invest in Silver after the 2020 Market Crash

Thus, keen investors looking to protect their hard earned money are most likely holding gold.  But, those investors looking to profit from the ongoing market chaos are salivating at the opportunities in the silver market.    

Throughout history, similarly to gold, silver has been used as currency and it is know to be a hedge against inflation.

In fact, when gold goes up in value with conviction, silver follows with more momentum.  The opposite can also be true.  When gold drops in value, silver follows with much more momentum, to the downside. In short, the price of silver is definitely more volatile than the price of gold.

Silver Volatility

Silver’s fundamentals combined with it volatile nature can be a very powerful, but also dangerous combination.

One reason for silver’s volatility is its smaller market. Keep in mind silver is not as scarce as gold, which explains why it is less valuable than gold.

Most importantly, the silver market is much smaller than the gold market.  In 2019, the market value of gold was about $193 Billion.  Whereas the silver market value was about $16 Billion.  This makes the silver market much more susceptible to speculation and as a result to market fluctuations.market

If you want to learn more about the differences between gold and silver, you may want to check out this article Gold Vs Silver: The 5 Differences That Matter Most to Investors from Goldsilver.com

The Gold to Silver Ratio

Perhaps of most importance, in this article, is the very interesting dynamic occurring in the 2020 market crash, related to the gold/silver ratio. The gold/silver ratio in the current market environment indicates that silver is extremely cheap compared to gold.

Through my years of investing in gold and silver, I’ve come to recognize the number 50, as a more or less normal average gold to silver ratio. This means it takes 50 ounces of silver to purchase one once of gold.

In researching the gold/silver ratio for this article, I see various precious metal authorities citing gold/silver ratio numbers such as 47 (at least for the 20th century). And I see a general consensus that the gold to silver ratio has been a little higher over the last 20 years. So, a gold/silver ratio of 50 seems reasonable. And I like that 50 is a nice round number that is easy to remember.

The chart below shows the gold/silver ratio over the last 100 years. Notice the sharp spike at the end of the chart. Indeed, as of today, it takes approximately 120 ounces of silver to purchase one once of gold!

Such a high gold/silver ratio is pretty much an anomaly. The markets eventually take care of anomalies like these one way or another. In other words, either the price of gold needs to go down, or the price of silver will need to go up. But, as discussed in earlier articles, it looks like we are heading into an inflationary environment, and higher inflation will likely drive gold prices even higher.

Silver Price Scenario Based on Gold/Silver Ratio

As of this moment, silver is trading at $13.80 an ounce and gold is trading at $1,585 an ounce.  If we apply a 50 to 1 gold/silver ratio to the price of gold, silver would need to be trading at $31.70 an ounce.  In other words, silver would have to climb 130% just to reach a more natural gold/silver ratio balance.

But, $31.70 silver completely ignore’s gold’s strong probabilities of climbing higher. If gold continues climbing, as it should in the current chaotic and arguably inflationary environment, silver should also justify higher prices.

Thus, at some point silver will likely rocket much higher, just to keep up with gold and reach a more moderate gold/silver ratio.

In addition, because the silver market is so small, price fluctuations can be greatly magnified in short periods of time. So, when silver rockets up, it is very likely to overshoot way past a moderate gold to silver ratio.

Imagine, just for fun that the gold/silver ratio falls to 30. That doesn’t seem unreasonable, when you look at the chart above. At $1,585 gold and at a gold/silver ration, silver would have to trade at $52!

Given all of this, silver may not be for the faint of heart. But, silver could be a phenomenal investment at times like this, when its price is depressed, relative to gold, and the prospects for inflation are high.

Investing in Physical Silver

One of the reason gold and silver investors like holding physical metal is because other alternatives amount to holding paper. If you own gold or silver, but someone else is holding it, all you really have is a piece of paper that says you own that gold or silver. But, if you have coins, bars, or other physical forms of metal in your possession, then you don’t have to worry about paper becoming worthless.

When it comes to physical silver, I personally like 90% silver US coins. But, I also own silver bars of various sizes. Purchasing coins and silver bars is pretty easy, so I won’t get into it here.

However, it is worth mentioning that I’ve read reports that there is a shortage of physical silver at the mints. So, in this current environment, it may take longer than usual to take delivery of silver, and you may end up paying a bit of a premium.

Investing in Silver Stocks

I hesitate to touch on the subject of silver stocks for three reasons.  One, I prefer to avoid investing in individual companies.  I just think there’s too much risk in doing so.  Second, silver alone can be very volatile.  As a result, silver stocks can be extremely more volatile than the metal.  And third, most silver mining is really a byproduct of mining for other metals, such as gold.  Therefore, most “silver companies” are really gold companies with some silver exposure. 

Nevertheless, if you are interested in researching silver stocks you may want to check out this excellent article ‘Silver Miners’ Q4’19 Fundamentals‘ from zealllc.com.

Moving Forward

Investing in silver after the 2020 market crash is shaping up to be a great investing opportunity.  And I believe this market crash will continue to present other opportunities to keen investors.  In fact, I am particularly interested in investing opportunities arising from the 2020 market crash in other areas such as oil and in real estate.    

I believe that times like these require focusing on the fundamentals and having a solid strategy.  If you are new to this site, I highly recommend you check out the article below.

Bridge to Financial Freedom 

This is where I touch on the overall financial freedom strategy.  From there you’ll be able to navigate to subjects more aligned with your current financial situation and goals.

Stay hungry my friends!