Transcription
Silver just did something it has only done a handful of times in the last 20 years, and almost nobody is talking about what happens next. Look at this ratio. This is a silver priced against copper, going all the way back to 2009. And right now, we are coming down off the single biggest spike in the entire chart. Bigger than 2011, bigger than 2020, the biggest one on record.
Here's the part that should be getting your attention. Every single time this ratio has spiked this hard, it has not just come back to normal, it has overshot all the way down and into what I'm going to call the undershoot zone. If history repeats itself, silver could still have a long way to fall relative to copper before this cycle is actually done. But, and this is the part I want you to sit with for the next 15 minutes, an undershoot is not a disaster for a prepared investor. It is one of the best setups this market offers. So stick with me, because by the end of this video, you will know exactly what to watch for and exactly how three different kinds of investors could play it.
So let's get into this chart. But before we do that, how do you like this market? Didn't I tell you? Look at my past videos. The past two weeks, and people were saying, "Whoa, what do you mean? You're a black swan. You're supposed to predict doom." Two days in a row now. Watch the NASDAQ coming back. Anyway, back to my current situation. And by the way, if you want to join as a subscriber, I would surely appreciate it. And don't forget to leave me a thumbs up. I'm fighting with the algorithm every day.
Okay. So let's take a look at we are dividing the price of silver in dollars per ounce by the price of copper, also in dollars per ounce. That is it. This is how when the line goes up, it means silver is getting expensive relative to copper. When the line goes down, silver is getting cheap relative to copper. Now, why copper, right? Who cares? Well, because copper is the metal that tells you what the real economy is doing. It goes into wiring. It goes into construction, electric vehicles, data centers, the boring, unglamorous stuff that actually builds the world. Silver, on the other hand, is half industrial and half fear and speculation metal. So when you divide one by the other, you get a clean read on how much fear premium is baked into silver at any given moment.
On the chart, you will see three lines that matter, right? The first gray line in the middle at 103 is fair value. The level this ratio has gravitated back to again and again over 15 plus years. The lower gray line at 70 is the undershoot zone. The level the ratio has dropped to after every major spike resolves. And that sharp spike up near $271 on the right side of the chart, that is where we just were months ago. Remember, it wasn't that long ago. Silver was like $120. Today, the ratio sits back down to around 144. So we already come down hard from the peak. We're not at fair value yet. And history says we are not guaranteed to stop at fair value either. We could slide right through it into the undershoot zone before this move is finished. So let's be clear here. We may have still more to go. But because this is education and not prediction, at least you know how far down you could potentially go before it reverts. Keep that in mind.
So, let's put this into perspective, because this is not the first time silver has gotten ahead of itself. Go back to 2011. Silver spiked hard against copper. This ratio shot up over 170, and then it spent the next two years grinding all the way down into the 60s and undershoot. Anyone who bought silver at the top of that spike sat underwater for a long time. Anyone who waited for the undershoot and bought did very well over the next decade. Fast forward to 2016. Same pattern, same scale. The ratio pushed up nearly 140, then rolled over and eventually round-tripped it back down into the high 70s. Then 2020, the pandemic panic spike. The ratio actually dipped to its low point on the whole chart during the financial crash. Silver got crushed relative to copper as industrial demand froze, and then it surged back up above 145 within months as stimulus and inflation fears took over. That is the fastest round trip on this entire chart.
The pattern across all three of these cycles is consistent. Silver overshoots copper on the way up, driven by fear, speculation, momentum. Then it corrects, and it typically corrects past fair value into the undershoot zone before finding real footing. That is not a guess, that is 15 years of the same behavior repeating itself on this chart.
So let's take a look at the economic context. Silver is trading right around $28 an ounce. Copper is trading right around $4.60. Gold, for context, is sitting around $2,400 with the gold to silver ratio near 83. On the macro side, the Federal Reserve just held rates steady in the 5.25 to 5.50% range with a divided committee and a Fed chair signaling that inflation control is still the priority at 2%. A softer dollar this week gave both metals some support. At the same time, copper has its own powerful story right now. Surging demand for electric vehicles. The buildout of artificial intelligence data centers. That's right, they use copper. And tightening supply of major producing regions like Chile are all keeping a real floor on copper prices.
So here's the tension. Copper has genuine structural demand behind it right now. Silver has real industrial use too. Solar panels alone are a massive and growing source of demand. But silver also carries that extra layer of fear-driven speculative buying that copper simply does not have. When that fear premium unwinds, silver tends to give back ground against copper. Even if the price of silver in dollar terms is still high, this is exactly the mechanism behind this chart.
So what could happen next? I want to walk you through four scenarios. They're not guarantees. They're ways of organizing your thinking around a range of outcomes with rough probability weights attached. So scenario one is the bear case, and I'd put this around a 15% probability. Copper demand stays hot from AI infrastructure and EVs. The fear premium drains out of silver faster than expected, and the ratio slides all the way through fair value into the undershoot zone near 72. Silver could trade back in the high 20s to low 30s in dollar terms if copper holds steady. See, near you to the base case, and this is where I'd put the highest weight, around 45%. The ratio drifts down towards fair value near 103 over the coming 6 to 12 months as the fear premium normalizes but doesn't fully collapse. That points towards silver in the low to mid 40s, assuming copper holds its current range. Scenario three, the bull case, the green line, around 30% probability. Inflation proves stickier than the Fed wants. Geopolitical tensions in the Middle East keep a bid on the precious metals, and silver's fear premium gets anchored at a higher level than history suggests. In this case, the ratio holds well above fair value, and silver pushes into the mid 50s to high 50s range. And of course, scenario four, the black swan, around 10% probability. Some shock nobody's currently pricing, a major currency event, a bank stress episode, whatever, it sends silver into a second speculative spike.
So notice something important. Of course, all of these, even the bear case, is not really a crash story. It is a rebalancing story. The black swan case here is in the scare, and it's the opportunity one for anyone already positioned.
So what is the investor playbook? Simple way to think about it. This ratio is not a buy or sell signal on its own. It is a probability map. It tells you when you are in a cycle. So you're not the person buying the top of the spike out of pure excitement, and you're not the person panic selling at the bottom of an undershoot either. One approach some investors use is what's called a barbell strategy. That just means splitting your exposure into two extremes instead of one middle road. On one side, a small position you're comfortable holding through volatility. On the other side, keeping dry powder. There's also a concept called the Kelly criterion, which in plain terms just means sizing your position based on how confident you are and how much edge you actually believe you have. Not going all in on a single scenario, and not spreading yourself so thin that a correct call barely matters. Applied here, that might mean holding a moderate core position today while reserving your largest add for if the undershoot zone, you know, if you undershoot that zone, it actually shows up. But the bigger picture is this ratio has rewarded patience for over 15 years. The investors who did best were not the ones chasing the spike. They were the ones who understood the pattern and had a plan for both the bear case and the black swan.
So in closing, let's put it all together. Silver has just come off the biggest spike against copper in the last 15 years. History says this kind of move does not stop cleanly at fair value. It tends to overshoot into undershoot, you know, territory before the cycle resets. This is not a warning sign. It's a roadmap. So if this kind of analysis helps you, I recommend that you subscribe, you like, but also, more importantly, I want you to become a member of this channel. Why? I offer 10 separate tools for my members. I cannot provide you all the information in one video. So I split it out around charts, around special videos for my members. Depending if you are a wealth manager or tactician member, you will have your own set of tools. And you get to see also the portfolio that I'm currently building, an ETF portfolio, which also contains silver and gold, and also a portfolio stock portfolio, which so far is beating the S&P 500. I believe that Patreon has a free one-week access currently going. So take the opportunity right now and join my 200 subscribers, I mean members.