Silver has been dead money over the past year or so, relentlessly grinding sideways to lower. That weak price action has naturally left this classic alternative investment deeply out of favor. Silver is extremely undervalued relative to gold, while speculators’ silver-futures positions are extraordinarily bearish. All this has created the perfect breeding ground to birth a major new silver bull market, which could erupt anytime.

Silver’s price behavior is unusual, making it a challenging investment psychologically. Most of the time silver is maddeningly boring, drifting listlessly for months or sometimes years on end. So the vast majority of investors abandon it and move on, which is exactly what’s happened since late 2016. There’s so little interest in silver these days that even traditional primary silver miners are actively diversifying into gold.

But just when silver is universally left for dead, one of its massive uplegs or bull markets suddenly ignites. Some catalyst, typically a major gold rally, convinces investors to return to silver. Their big capital inflows easily overwhelm the tiny global silver market, catapulting this metal sharply higher. Silver skyrockets to amazing wealth-multiplying gains, dwarfing nearly everything else. This reinvigorates silver’s cult-like following.

Silver’s dominant primary driver has long been gold, which controls all precious-metals sentiment. When gold isn’t doing anything exciting, silver languishes neglected. But once gold rallies high enough for long enough to convince investors a major upleg is underway, capital starts returning to silver. Thus silver is effectively a leveraged play on gold, amplifying its price action. Silver never soars unless gold is strong.

This psychological relationship is so ironclad it may as well be fundamental. The global silver and gold supply-and-demand profiles are technically independent, with little direct linkage physically. But when investment demand flares to drive gold higher, parallel silver investment demand soon materializes. So silver and gold often move in lockstep, especially when gold’s price action is interesting enough to catch attention.

All this makes the Silver/Gold Ratio the most-important fundamental measure for silver prices. The lower silver prices happen to be compared to prevailing gold ones, the greater the odds a major silver mean-reversion rally is imminent. And today silver is almost as low relative to gold as it’s ever been in the past century. This first chart looks at the SGR, or more precisely the inverted GSR, over the past 13 years or so.

The SGR calculation results in tiny hard-to-parse decimals, like this week’s 0.012x. So I prefer to use the gold/silver ratio instead, which yielded a cleaner 81.9x as of this Wednesday. Charting this GSR with its axis scaled upside down produces the same SGR line, but with far-more-brain-friendly numbers. This shows that silver is extremely undervalued relative to gold today, which is super-bullish for this neglected asset.

Again this week the SGR was running at just 81.9x, meaning it took almost 82 ounces of silver to equal the value of a single ounce of gold. So far in 2018, the SGR has averaged 79.6x. As you can see in this chart, that’s extremely low. There have only been two other times in modern history where silver looked worse relative to gold, late 2008’s first-in-a-century stock panic and early 2016’s secular-bear-market lows.

Because of silver’s tiny market size, it’s an incredibly-speculative asset. When investment capital flows really shift, silver can soar or plunge with shocking violence. Silver’s speculative nature makes it far more susceptible to general market psychology than gold. Silver acts like a small fishing boat battered around in the choppy waves of sentiment, while gold is more like a supertanker punching through them.

That 2008 stock panic was the first since 1907, one of the most-extreme fear events of our lifetimes. Technically a stock panic is a 20%+ plummet in the major stock-market indexes in less than two weeks. The flagship S&P 500 stock index indeed collapsed 25.9% in exactly two weeks in early October 2008, which terrified everyone. If felt like the world was ending, so investors and speculators sold everything to flee to cash.

Gold weathered that storm well, only sliding 3.3% in that wild stock-panic span. But the overpowering fear scared traders into hammering silver 23.7% lower. On exceptional stock-market down days, silver tends to split the difference between the S&P 500 and gold. We’ve seen that recently as well, during this new stock-market correction since early February. Silver is particularly sensitive to prevailing herd sentiment.

Between September and December 2008 straddling that stock panic, the SGR averaged just 75.8x. Silver was radically undervalued relative to gold, an anomalous state that has never been sustainable for long. The resulting mean reversion and overshoot higher was enormous, yielding stupendous gains for silver investors. Silver ultimately bottomed at $8.92 per ounce in late-November 2008, at a super-low 83.5x SGR.

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