For anyone who owns gold, this year has been wonderful. Gold has pushed to all-time highs exceeding $2,400 an ounce, and even recent profit-taking doesn’t seem to have taken much steam out of gold’s rally.
But if you own silver, you’ve probably been wondering when silver was going to catch up. While gold has been on a phenomenal growth streak since late last year, silver didn’t seem to be doing much.
Other assets, even alternative safe haven assets, seemed to be pickup up in value. But silver just continued to lag.
That may all be over now, as silver has now broken the $30 barrier for the first time in a long time. And now $30 seems to be a floor, not a ceiling, as precious metals profit-taking hasn’t pushed silver down nearly as much as gold.
If you’ve been looking to buy silver to take advantage of price growth, this may be the start of a bull run in silver that silver owners have been waiting for for a long while. And if silver really takes off, this may be your last chance to buy silver while it’s still relatively affordable.
What the Gold Silver Ratio Tells Us
Precious metals buyers who buy both gold and silver often look at the gold silver ratio to determine which precious metal they want to buy. The ratio goes by multiple other names, including silver gold ratio, gold to silver price ratio, etc.
The ratio is merely the price of gold divided by the price of silver. It tells you how much more valuable gold is than silver, or how many ounces of silver you would have to buy in order to reach the equivalent price of gold.
For instance, if gold is at $2,400 an ounce and silver is at $30 an ounce, the gold silver ratio is 80, which is normally stated as 80 to 1 or 80:1. This tells you that one ounce of gold is worth as much as 80 ounces of silver.
For much of silver’s monetary history, gold and silver were valued at between 15:1 and 16:1 by legislative fiat. These bimetallic currency standards couldn’t stand up to market movements in gold and silver prices, which led to the eventual abandonment of bimetallism in the late 19th and early 20th centuries.
From there on, gold and silver prices fluctuated against each other on open markets, and the ratio between gold and silver prices fluctuated as well. Since President Nixon closed the gold window in 1971, the gold silver ratio has fluctuated between about 15:1 and 115:1, with most trading ranges falling between about 40:1 and 80:1.
During the last precious metals bull market, from 2008 to 2011, the gold silver ratio started off at about 56:1 at the beginning of 2008, reached over 80:1 by the end of 2008, and gradually fell to about 32:1 when silver peaked in 2011. From there the ratio gradually increased over the next several years, hitting 80:1 in 2018 and over 115:1 in 2020 when gold rallied during the shutdowns.
Since then the gold silver ratio has fluctuated between about 65:1 and 95:1. In the last year, the gold silver ratio has fluctuated mostly between 80:1 and 90:1, with the recent drop in the ratio to under 75:1 portending a possible long-term shift lower.
Many gold and silver buyers pick a target ratio that they like, then buy gold or silver depending on which way the ratio moves. If you’re targeting a long-term 60:1 ratio, that would mean that gold at $2,400 should see silver at $40.
So if silver is at $30 rather than $40, silver would be undervalued and hence might be a good buying opportunity since it could grow in value to revert to a 60:1 ratio.
If silver were at $60 instead, that would mean a gold silver ratio of 40:1, below your target ratio of 60:1, and might indicate that silver is overvalued and gold relatively undervalued.
Every person will have his or her own idea of where the gold silver ratio “should” be, and whether gold or silver are then relatively overvalued or undervalued. But the ratio can definitely be a good place to start when assessing whether to buy gold or silver.
The Outlook for Silver
With both gold and silver pushing higher this year, and with the threat of recession looming large, the outlook for silver the rest of the year continues to look bullish.
Silver has benefited in recent years from both increased demand and falling supply. Over the past decade silver supply has fallen almost 5%, while demand is expected to increase over 14%.
The imbalance between supply and demand has grown large too, with this year expected to be the sixth consecutive year in which total silver demand has outstripped silver supply. Eventually prices are going to have to rise significantly to keep those numbers in equilibrium, especially if above ground silver stores are exhausted.
With silver playing a major role in solar panels, as well as playing a role in electric vehicles and new battery technologies, silver demand from industry is robust. And with growing safe haven demand from investors, that side of the demand equation should remain strong as well.
The stage is being set today for a potential bull run that could rival that of the 2008-2011 time frame. Many long-time silver market observers and silver analysts have been waiting with bated breath for the time when silver would finally go on a rampage and start matching the performance of gold. This may be what they were waiting for.
If you’re looking to take advantage of silver’s potential future price growth, there are many ways you can do that. One popular option is of course to make direct cash purchases of silver coins and bars.
The disadvantage to that is that large amounts of silver can be bulky and heavy, making it difficult to store at home or in a safe deposit box, unlike gold which has greater value per unit of weight.
One way around that is to buy silver through a silver IRA. A silver IRA offers the same tax advantages as any other IRA account, only that it owns physical silver coins or bars rather than financial assets like stocks or bonds.
Silver IRAs can be funded with tax-free transfers of assets from existing tax-advantaged retirement accounts such as a 401(k), 403(b), TSP, IRA, or similar account, enabling you to protect your existing assets with physical silver and without having to take a tax hit.
The experts at Goldco have helped thousands of customers over the years benefit from owning silver, and we can help you too. Call Goldco today to learn more about the many advantages of owning silver.
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Trevor Gerszt is the founder and CEO of Goldco, a precious metals dealer in Los Angeles. For more than 20 years, Trevor has sought out ways to help people build long-term wealth through the security and stability of precious metals and other alternative assets. Goldco is A+ Rated by the Better Business Bureau, a 5-Time INC 500 Winner and has countless 5-Star Reviews for its quality customer service, dependability and strong reputation.