Prospect of silver hitting $80 shakes up stock, ETF markets

The Bank of America Merrill Lynch said in a report that there was strong possibility of silver hitting $80 an ounce, causing ripples in the silver stock and ETF markets.

The bank's $80 call was, however, not the lone bullish stand in recent weeks. There is an increasing belief in markets that the silver boom is far from over; it does have legs and is not just a momentary upward spurt caused by more investors hedging against inflation and paper money.

Silver raced to $49.845 in New York on April 25 before sliding back to $47.541 on Friday.

The Bank of America Merrill Lynch report postulates that silver is a key 2011 trade idea within our continuation of the secular bull market for commodities theme.” The bank says it expects to see silver re-testing the 1980 high of above $50 and that the longer-term pattern is bullish.

Ripples are already felt in stocks and ETF markets. Here are some examples given by 24/7 Wall Street in a note.

The iShares Silver Trust (NYSE: SLV) filed to sell almost $2.2 billion in new trust shares to buy more silver. Silver at $80 would probably generate a move in the iShares Silver Trust (NYSE: SLV) to $78.00 or more if the move is fully up to $80.00 per ounce.

The note says silver at $80.00 would work magic for the double leverage ProShares Ultra Silver (NYSE: AGQ) exchange-traded product. Due to intraday and future contract tracking, the number is harder to peg but that could easily be over $700.00 per share if that occurs.

A silver super cycle boom will be boon for Silver Wheaton Corp. (NYSE: SLW), the report says.

Wealth Daily analyst Greg McCoach had said earlier there was a prospect of silver rising to $100.

He says if the ratio narrows to the historic 1:16 level, then silver prices could more than double. Currently the ratio is at 1:32, with gold above $1,500 and silver close to $48.

If the price of silver would catch up to the historic gold-to-silver ratio today, the price of silver would be $95.87/oz. And as gold prices continue to rise, the price of silver would easily exceed $100/oz, he said.