The silver-to-S&P 500 ratio divides the metal's price by the American stock index. It has reached one of its lowest readings in half a century.
In the 1980s the same ratio was roughly 30 times higher.
In 2011 it was about 2 and a half times higher, a 250 per cent move from current levels.
Every extreme low over the past 50 years preceded a large multi-year rally. Governments and regulators have been changing rules around the metal.
Basel 3 rule changes, Chinese export controls and a persistent supply deficit may be creating conditions for a large price move in silver relative to stocks.
The Silver-to-S&P 500 Ratio
A single price in dollars can be distorted by currency moves or Federal Reserve commentary.
The ratio divides silver's price by the S&P 500. The result shows how cheap or expensive the metal is relative to American stocks.
At its 1980s peak the ratio was roughly 30 times above where it stands today.
In 2011 the ratio reached about 2 and a half times today's level. A return to that reading would be a 250 per cent move.
Every extreme low over the last 50 years preceded a large multi-year rally.
The ratio now registers one of its lowest readings in half a century.
Central banks have been adjusting monetary policy. Governments have been rewriting trade rules around physical commodities.
Basel 3 and the 85 Per Cent Rule
For decades, large banks could carry unallocated silver on their books. A paper claim means the bank says it has the metal. No specific bar with a client's name is stored.
Banks used the system to run large trading books. Many paper ounces floated for every real ounce.
Paper claims on silver amount to 7.6 times the physical metal.
In Felix's view, Basel 3's net stable funding ratio changes the arithmetic. For every 100 dollars of unallocated silver a bank must set aside 85 dollars in cash or equivalents. The industry shorthand is the 85 per cent rule.
Banks used to profit from paper silver books that required minimal capital.
Under the new rules it became a cost almost overnight.
Felix argues that banks are being pushed out of the paper market. Allocated silver, real bars in vaults, is replacing it.
When IOUs get replaced by physical metal, demand for real bars rises. The ability to suppress the price through paper trading diminishes.
The floor under silver moved higher without any formal announcement.
Basel 3 implementation in the United States is expected in the coming year or two, with Britain due to follow by the end of that period. While some countries have already implemented the rules, American futures markets, the largest venue for silver trading, have not yet applied them.
China's Export Controls
In Felix's view, China replaced its 25-year-old export system at the start of this year.
A tight licensing regime took its place. Exports now require a licence.
Silver no longer leaves China the way it used to.
Felix estimates that Chinese refiners handle 60 to 70 per cent of the world's refined silver exports.
Solar factories and manufacturers outside China must compete for a smaller pool of available metal. China has been tightening export controls on various strategic materials in recent months.
In March, China imported 836 tons of silver.
The figure was 78 per cent higher than the month before. It was 170 per cent above the 10-year average.
Felix attributes the surge to two causes. Chinese buyers, priced out of gold, turned to silver bars as an affordable alternative.
The solar industry inside the country frontloaded production ahead of a tax change. Factories pulled forward metal purchases.
China is restricting outflows while increasing inflows, tightening the metal available to buyers elsewhere.
Industrial Demand for Silver
The solar industry consumes 20 per cent of the world's annual silver supply.
Global solar capacity continues to expand. Data centres for artificial intelligence add another source of demand.
Electric vehicles use roughly double the amount of silver compared to a conventional petrol car.
Silver is an industrial input with few substitutes in high-conductivity applications.
Felix argues that big industrial buyers are pulling real metal out faster than mines can replace it.
Solar, electric vehicle and data centre demand all draw on the same supply.
Wealthy buyers and sovereign purchasers are locking physical silver into personal vaults. The metal is unlikely to return for decades.
Comex Inventory Levels
The Comex is the main American exchange where silver futures trade.
It maintains vaults that are supposed to have real silver backing the paper contracts.
A year ago the Comex had 114 million ounces in its vaults. The figure then fell to 76, a drop of roughly a third.
Brinks, one of the storage companies operating Comex vaults, reported finding 1 million ounces of silver last week.
Felix attributes some of the metal's volatility to Comex activity.
The tighter inventories become, the more sensitive the price is to any withdrawal or delivery request. Metal leaving the vaults has gone somewhere, into industrial use or private storage. The Comex lost a third of its silver in a year.
Six Years of Deficit
Silver has been in a supply deficit for 6 consecutive years. The Silver Institute confirms the streak.
For 6 consecutive years the world consumed more silver than it mined or recycled.
Stockpiles built up over decades are being drawn down.
Each year the deficit persists, available reserves decline further.
Felix argues that less supply and more demand should push prices higher.
Recent industry surveys confirm the deficit has continued. Some forecasters see a narrowing if demand softens at higher prices.
Conclusion
In Felix's view, the United States government has designated silver a mineral of strategic importance.
Basel 3 implementation timelines vary by jurisdiction. Some countries have already applied the net stable funding ratio to precious metals. America and Britain are expected to follow within the next year or two.
The American market is the largest venue for silver futures. Once it applies the 85 per cent rule, carrying costs will rise for every bank active there. Felix argues that the largest repricing events in commodity markets, where prices can move 10 per cent in a single day, trace back to someone changing a rule.
Basel 3 is raising carrying costs for paper silver.
China is restricting refined exports.
A 6-year supply deficit continues to draw down stockpiles. The ratio remains at a half-century low.
Basel 3 timelines remain on track.
China's licensing regime is still in place.
The deficit has not closed after 6 consecutive years. Every previous extreme low in the silver-to-S&P 500 ratio over the past 50 years preceded a large multi-year rally.
The ratio registers one of its lowest readings in half a century. Rule changes are still being phased in. The supply deficit persists. Silver's price relative to American stocks remains near the low.