This Indicator Says Silver is Undervalued: Why Silver Hasn’t Caught Up to Gold – Yet
As the precious metals market continues to evolve, the disparity between the performances of gold and silver has caught the attention of investors and analysts alike. Despite gold’s impressive run, reaching record highs, silver has lagged behind, leading to discussions about its potential undervaluation. According to a recent article by Myra P. Saefong for Dow Jones, various metrics and expert opinions suggest that silver could be primed for a resurgence.
High Gold-Silver Ratio Indicates Undervaluation
The gold-silver ratio, which measures how many ounces of silver it takes to buy one ounce of gold, remains historically high, suggesting silver is undervalued. Currently hovering around the 100 mark, the ratio has held firm even as gold has soared, illustrating a significant discrepancy between the two precious metals. This ratio averaged 84.8 from 2023 to 2024, but experts from BNP Paribas forecast it may remain elevated between 100 and 110 for the foreseeable future due to ongoing economic uncertainties.
Economic Factors Affecting Prices
Peter Grant, vice president and senior metals strategist at Zaner Metals, emphasized the correlation between gold and silver prices but noted that gold is recognized as a stronger hedge against economic instability. Renewed fears surrounding global economic and financial stability have driven gold prices up, while suppressing silver prices which are more sensitive to industrial demand.
Last week, gold futures saw an impressive climb of 5.6%, while silver futures gained a more modest 3.9%. Grant noted that silver can exhibit higher volatility than gold, referencing a drastic 15% drop in April following the announcement of tariff measures by former President Donald Trump, whereas gold experienced a milder decline of roughly 4% during that period. This volatility indicates that bearish sentiment around industrial use of silver can overshadow its investment appeal.
The Supply-Demand Dynamics
Another significant aspect influencing the potential valuation of silver is its ongoing global supply deficit. The Silver Institute projects that global demand will continue to exceed supply for the fifth consecutive year in 2025. Grant pointed out that this structural deficit presents an opportunity for savvy investors to acquire silver at favorable prices before a price correction aligns closer to gold levels.
Investor Sentiment and Market Trends
While the gold-silver ratio suggests a buying opportunity, experts note that silver’s performance trends will likely be tied to overall market conditions and investor sentiment. Notably, should a risk-on appetite return amid any reduction in trade tensions, analysts believe silver may outperform gold, which would alter the current ratio.
Stefan Gleason, CEO of Money Metals Exchange, remarked that the current gold-silver ratio is signaling a sale on silver, noting that strategic investors with a medium to long-term horizon may find considerable value. However, the inherent nature of silver as a resource tied closely to industrial use means that its price movements could remain correlated with broader economic trends, particularly as supply dynamics shift. As copper and silver become interlinked, declines in copper production may exacerbate silver’s supply issues.
Strategic Insights on Investment
With growing concern regarding credit market stability, recently highlighted by Moody’s downgrade of the U.S. government’s credit rating, gold appears to be a favored safe-haven asset among institutional and individual investors. On the other hand, Grant pointed out that silver is increasingly viewed as a speculative asset, more similar to copper than gold.
The current gold-silver ratio near 100 acts as a strong indicator that silver remains undervalued relative to gold. Short-term fluctuations and risks will persist, but if economic conditions stabilize, a shift in investor focus towards silver could restore its performance.
Conclusion: A Potential Opportunity?
In summary, while gold has enjoyed a remarkable ascendancy, the underperformance of silver combined with a high gold-silver ratio might indicate an investment opportunity for those willing to take a longer view. As global economic conditions evolve, the interplay between industrial demand, supply constraints, and investor sentiment will be critical in shaping silver’s market trajectory. As experts advise, keeping a keen eye on these indicators may yield profitable outcomes for discerning investors.