Gold and silver have always been popular choices for investors seeking safe-haven assets, especially during periods of economic uncertainty. However, with gold surging ahead in recent years, silver has struggled to keep pace. Is it time for silver to close the gap and outperform gold? Let’s break it down.
A Tale of Two Metals
Gold has been on a remarkable run since October 2023, with prices soaring from $1,850 to nearly $3,350 per ounce, an 81% increase in less than three years.
In contrast, silver was a slow starter, only showing significant movement from February 2024 onwards. The price rose from $23 to $34 per ounce, a 48% gain in 14 months.
While gold investors are enjoying substantial profits, silver has underperformed. But according to historical data, silver often outpaces gold during major rallies. For instance, during the December 2008 to April 2011 surge, silver skyrocketed 353.4% compared to gold’s 78.6% gain.
The question now is whether silver can stage a similar comeback.
Gold-to-Silver Ratio – Why It Matters
One way to assess the potential of silver is by tracking the gold-to-silver ratio. This metric shows how many ounces of silver are required to purchase one ounce of gold.
Currently, with gold priced at $3,333 per ounce and silver at $33.60 per ounce, the ratio stands at 102, significantly above the long-term average of 70.
For the ratio to return to its historical norm, one of two things would need to happen:
Silver prices must rise to $48 per ounce while gold remains constant.
Gold prices must drop, bringing the ratio closer to the average.
Given the current economic climate and geopolitical risks, a silver price surge appears more plausible.
Why Silver Could Be the Next Big Thing
Several factors suggest that silver might be poised for a breakout:
a. Geopolitical Tensions:
The surge in both metals has been largely driven by global uncertainty, particularly the impact of Trump’s tariff policies and the resulting market volatility. Historically, silver benefits more than gold during such periods as it is a smaller, more volatile market.
b. Supply and Demand Dynamics:
For the fifth consecutive year, silver demand is expected to outstrip supply in 2025. With a global supply of 1.05 billion ounces and demand projected at 1.20 billion ounces, the market is tightening.
Even a slight increase in demand could cause a significant price surge given the relatively small size of the silver market.
c. Industrial Demand:
Silver isn’t just a precious metal, it’s also a crucial industrial commodity. It is widely used in electronics, solar panels, and medical equipment. With green energy initiatives gaining momentum, demand for silver could increase further, potentially driving prices higher.
What’s Holding Silver Back?
Despite these favorable conditions, silver’s investment demand remains tepid.
Unlike gold, which saw a major boost from central bank purchases in recent years, silver hasn’t had a similar tailwind. Central banks typically prefer gold for its stability, leaving silver more reliant on retail and industrial demand.
However, the potential for a surge in investment demand remains. If investors start to see silver as a cheaper alternative to gold, the market could witness a swift reversal.
The Bottom Line – Is Silver a Better Bet Today?
The current gold-to-silver ratio and tight supply-demand dynamics suggest that silver is undervalued relative to gold. While gold remains the more stable and established safe haven, silver’s potential for higher percentage gains during rallies is evident.
For those looking to diversify their portfolio and capture higher returns, silver could be a worthwhile bet. However, as with any investment, timing is crucial. Keeping a close watch on geopolitical events, industrial demand, and investor sentiment will be key to maximizing returns.
