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Could Silver outperform Gold?

Published by Karl Martin Karus in category Precious metals on 20.08.2020
Gold price (XAU-SEK)
16 720,10 SEK/oz
  
+ 94,30 SEK
Silver price (XAG-SEK)
210,46 SEK/oz
  
+ 3,20 SEK

Silver is making the biggest price rally in recent history, having risen 21% in 3 days from $ 19.3 / ounce to $ 23.2 / ounce. Compared to the low point of the year reached on March 18 (11.7 USD / ounce), the precious metal has doubled its value in 4 months and brought record returns to investors who have taken positions at abnormally low-price levels of silver.

Silver and Gold

The long-awaited silver price rally by analysts is taking place in a combination of several factors. Unlike gold, which is predominantly an investment and jewelry metal, of which only 12% is used for industrial purposes, silver continues to be around 60-70% of industrial raw materials, whose investment function is still secondary.

However, the uncertainty of the financial system, combined with the historically record-breaking spread between gold and silver prices, has led to an increasing share of capital seeking refuge in real assets not only from gold but also from silver, which is a very attractive investment in the long run.

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While gold continues to be preferred to silver as the safest asset custodian, higher volatility of silver, combined with a recovery in global industrial demand recovering from the coronavirus, a growing green energy boom (technologies requiring large silver inputs) and investment demand (silver trading volume is only a ten tenth of gold trading) makes gold an instrument of speculative growth from a “crazy little brother” perspective.

Thus, many investors continue to see great unrealized potential in silver, as unlike gold, which is currently trading at its historical record price, the price of USD 23 / ounce is less than half of the historical price record of silver in April 2011 at USD 48.5 / ounce.

There is room for improvement… The price of silver as of 23.07.2020, despite the recent rapid growth, still reaches only 50% of the 2011 peak. If the price of “poor man’s gold” should follow the trajectory of the price of gold in the near future, as many analysts expect, a large speculative return can be earned by purchasing silver.

Gold and Silver Price ratio

At the end of 2019 we wrote about the Gold and Silver price ratio and how to calculate it. Historically speaking gold and silver ratio has been on average 66. Writing this article, the price ratio is around 82. This indicates that silver could outperform gold price and could make new highs faster than gold.

When we see new highs for gold prices, there is a high probability of higher silver prices as well.

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Disclaimer: This article is for informational purposes only and is not intended as an investment analysis or recommendation to sell or buy commodities. Tavex is not responsible for any decisions made based on this information. Investing is associated with opportunities and risks, and the market value of commodities can both increase and decrease. Past or future yields on the commodities and financial ratios shown above do not represent a promise or an indication of future earnings.

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