Silver ($XAG-USD) has recently hit a new three-year peak ($29.10), setting itself on a path to achieve the highest daily close seen in 11 years. This significant price increase aligns with a sharp -9% drop in the Gold/Silver ratio since the beginning of April.
The Gold-to-Silver ratio, the oldest continuously tracked exchange rate in history, has dramatically shifted. The historical average of this ratio has typically hovered around 10 to 15 ounces of silver to purchase one ounce of gold. With gold (XAU-USD) priced around $2,400 per ounce, a return to the 15:1 ratio would imply a theoretical silver price of $160 per ounce. This represents a potential increase of over 450% from today’s silver price of approximately $29, highlighting a significant undervaluation of silver compared to historical norms.
Use Case And Investment Appeal
As investors recognize the historical underpricing of silver relative to gold, silver has begun to draw significant market attention. This is evident in mainstream retail sectors, such as Costco (NASDAQ: COST), where consumers have reportedly been buying gold and silver worth up to $200 million per month.
The finite nature of silver, much like gold, ensures its enduring value. Unlike fiat currencies, which can be printed at will, silver’s limited supply fosters its intrinsic worth and helps maintain its purchasing power over time. This scarcity is increasingly relevant as global demand for silver outstrips the available supply, driven by industrial applications and investment demand.
To some analysts, silver is perhaps more important than gold because silver has a much more significant use case in modern technology and industrial applications. And given the historical price ratio with gold, there is significant potential for appreciation.