adam hamilton had something intelligent to say for once. when you get past the ratios and charts, he says silver stocks will outperform the metal itself during the rally that we're due for one of these days (autumn?)

Silver’s fundamentals offer plenty of reasons to be bullish in the coming years. Relentlessly growing global investment demand coupled with reduced production is a recipe for much higher prices. With something like 3/4ths of all the silver mined globally being merely a byproduct, primarily of base metals, supplies will remain constrained. Investors will have to compete in a tiny market for this scarce metal.

While silver’s long-term bullish case is well-known among its investors, this volatile metal also has incredible near-term potential. In the coming months, silver is likely to witness exceptional gains. Unfortunately, the driver of this potential big autumn silver rally is not widely discussed. Thus many investors and speculators still sidelined since the panic risk missing out on this rare opportunity.

And ironically, the stock panic created the silver anomaly that led to this opportunity. Silver has a long history of following gold. Silver traders watch gold for trading cues, so gold action dominates silver psychology. Thus silver typically trades in lockstep with gold. But during the panic, the extreme fear spawned by the brutal stock-market selloff spilled into silver. It forced silver to decouple from gold and plummet far deeper than gold warranted.

I started telling our subscribers about this anomaly and trading it last October. Already it has proven a very successful strategy. One new long-term silver-stock investment we added then, because of this anomaly, is already up 160%! While silver itself fell under $9 in the heart of the panic, it has averaged $14 in the past month. And the panic anomaly driving these gains still hasn’t been fully resolved yet. There is more to come.

This whole panic episode, and silver’s near-term upside potential, is best understood in terms of the Silver/Gold Ratio. SGR analysis simply divides the daily silver close by the daily gold close and charts the result over time. It is very illuminating. I first wrote about this publicly, after our subscribers had deployed positions, back in early February. But a lot more investors are interested in silver today than back then.

So if you’ve been hiding out, following the ostrich strategy of cowering in zero-yielding cash instead of multiplying your capital in these once-in-a-lifetime post-panic opportunities, you really need to consider the SGR’s implications for silver. And if you’re already trading this SGR anomaly, keep your capital deployed and watch your gains grow. Although unwinding gradually, the SGR anomaly hasn’t even come close to being fully unwound yet. But it will.

This SGR reversion’s potential silver impact is easiest to understand if we start in the normal years preceding last autumn’s crazy stock panic. This first chart compares silver with gold over the last 5 years or so. The 44 months between January 2005 and August 2008 are the control period, showing silver’s natural and normal behavior. And the 4 months between September to December 2008 encompass the panic period where the SGR anomaly erupted.

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