In 2024, it was gold that grabbed the lion’s share of precious metals headlines, reaching 40 new all-time highs and finishing the year as one of the world’s best-performing assets.
This year, it’s silver’s turn. Famous (notorious?) for underperforming its more prestigious counterpart during the first half of metals bull markets, silver is just as well-known for its capacity to sharply outperform gold during the markets’ latter stages when investors’ attention invariably shifts to the far-cheaper and generally underbought alternative.
Whether or not that latent awakening is exactly what we’re seeing play out right now, there’s little question that silver has been not only the better performer so far this year among metals, but one of the best performing assets, overall. Since the beginning of January, silver is up roughly 49%, ahead of gold’s 41% rise and well ahead of the most popular equities indexes. Additionally, now sitting solidly above $40 per ounce, silver currently is residing at its highest price level in more than 14 years.
And according to a recent article in Barron’s, there’s more to come. The esteemed financial journal recently made note of what so far has been a banner year for silver, attributing the white metal’s success to its gold-like desirability as a geopolitical safe-haven as well as its appeal as an industrial metal.
Barron’s Sees Currently High Gold-to-Silver Ratio as Sign the White Metal Is Poised to Keep Climbing
But fortifying their optimism over silver’s near-term fortunes is how cheap the metal presently is relative to gold. Currently, the gold-to-silver ratio – which measures how many ounces of silver it takes to purchase one ounce of gold at any given time – is currently around 85. Barron’s notes the ratio has averaged 63 over the previous half-century and 70 over the more recent last two decades.
“Comparisons with the past suggest silver is undervalued relative to gold now,” Barron’s said, implying the gold-to-silver ratio is poised to drop from current levels. During a metals bull market, the likeliest way for the ratio to decline…for silver to become more valuable relative to gold…would be for the price of silver to begin rising at an accelerated pace in relation to gold.
I, too, think silver is well positioned to keep climbing from here. But while there’s no question that the gold-to-silver ratio remains significantly higher than its historical averages, I don’t believe it’s prudent to interpret that as a reliable “buy” signal or otherwise view the elevated ratio as a sign, in and of itself, that silver is destined to go higher.
Reliability of Gold-to-Silver Ratio Hurt by the Increasingly Tenuous Relationship Between the Metals
The fundamental reason I question the usefulness of the ratio as a reliable “tell” is simply that whatever real relationship gold and silver once had has become tenuous over time. The two obviously share broad characteristics as precious monetary metals, but while gold remains most highly prized as a safe haven and store of value, the majority of silver’s demand now comes from industry, as I noted earlier.
Fundamentals – Rather Than a Suspect Metric – Point to Continued Silver Strength
This is not to say I don’t expect silver to remain especially resilient through the foreseeable future. But in my estimation, that ongoing resilience will be attributable not to a suspect metric reverting to a perceived mean…but, rather, to fundamentals which include silver’s profile as a viable and far cheaper (compared to gold) safe-haven asset amid comprehensive uncertainty; the increasingly critical role silver’s anticipated to play for industry, in general…and the green-energy industry, in particular…as the world’s best conductor of electricity; and a structural silver supply deficit that’s now in its fifth consecutive year.
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