With the U.S. economy facing a potential recession in the near future, gold has been in the news quite a bit. It pushed close to its all-time highs several weeks ago, and has shown remarkable strength recently, seemingly unwilling to drop below $1,900 an ounce.
Gold demand has been strong for over a year, with investment demand in the form of gold bars and coins growing significantly. Mints around the world are seeing some of the strongest demand for gold they’ve seen in over a decade. But while gold gets all the attention, what about silver?
Silver: The Other Precious Metal
Gold always seems to garner headlines, but other precious metals always seem to play second fiddle. With platinum, palladium, or rhodium, that’s somewhat understandable, as the amount of investment products available in those metals is limited.
But silver has been used as a monetary metal for thousands of years, right alongside gold. Weights of silver have given their names to numerous world currencies such as the dollar, the mark, and the pound sterling. So why does silver remain in the shadows?
That’s a good question, and one without an easy answer.
For one thing, the normal driver of silver demand is industrial demand, unlike gold, for which the primary drivers are jewelry and investment demand. Silver is also far less expensive than gold, which is perhaps one reason most media sources just ignore it. But while the media may ignore silver, you shouldn’t.
Silver vs. Gold
Silver and gold prices fluctuate against each other, with the ratio of their prices going by many different names: gold to silver ratio, silver to gold ratio, gold/silver price ratio, etc. Divide the gold price by the silver price and you get the number of ounces of silver you would need to buy in order to equal the value of an ounce of gold.
Throughout history the gold to silver ratio has varied. During the Roman era the price ratio between silver and gold was legally fixed at 12 to 1. In early U.S. history the gold to silver ratio was also legally fixed, moving between around 15:1 to 16:1.
Once gold and silver were largely demonetized and their values were able to fluctuate on markets, the ratio between their prices has varied widely, but it has never returned to that legally fixed 16:1 ratio.
In the aftermath of the 2008 financial crisis, when gold prices set new all-time highs and silver prices came close to setting new highs, the gold to silver ratio was around 40:1. But today that ratio is closer to 85:1.
Some investors like to look at the gold to silver ratio to gauge whether one metal is overvalued versus another. For instance, if the long-term trend is for the gold to silver ratio to be at 50:1, an 80:1 ratio means that gold is overvalued or that silver is undervalued, whereas a ratio of 40:1 would mean that silver is overvalued or gold is undervalued.
Right now many people think silver is undervalued, as the 80:1 gold to silver ratio is higher than it has been during similar periods when gold has been as valuable as it is today. And with the US facing the potential of recession, there’s significant potential for silver to increase in value, as it too can serve as a safe haven asset during times of economic turmoil.
From the mid-1990s onward, the gold to silver ratio generally hovered in the 50s. By the time the recession started in December 2007, the ratio was about 54:1. But in the aftermath of the crisis, as both gold and silver pushed toward all-time highs, that ratio decreased to around 32:1.
If you buy silver when the gold to silver ratio is relatively high, and then the ratio returns to lower levels, your silver has become more valuable versus gold. And with many people expecting the ratio to return closer to its 50:1 long-run level, buying silver today makes sense to them.
The Potential for Silver
All of this isn’t to say that the gold to silver ratio is the only thing pushing for higher valuations of silver in the future. Investment demand for silver is strong and growing, and if the economy falls into recession that demand could increase.
Even aside from that, silver is in increasing demand for numerous industrial uses, with solar technology being one of them. Silver is absolutely essential to the creation of solar panels, and with demand for green energy increasing, demand for silver for photovoltaic cells should continue to rise as well.
With everything seemingly set for silver to make a big surge, the one question everyone is asking is, when will it happen? That’s anyone’s guess, as precious metals prices are notoriously hard to predict. But many silver bulls are waiting with bated breath for it to happen, and when it does, the results could be significant.
In the aftermath of the 2008 financial crisis, for instance, gold nearly tripled in price but silver more than quintupled. It’s not unusual for silver to make greater gains than gold during these types of bull markets, and there’s certainly a chance that the next recession could see a bull market for precious metals rivaling what we saw from 2008-2011.
Now is the time to make sure that you’re positioned to take advantage of silver’s potential. Many thousands of people have already started adding silver to their portfolios, whether it’s through a silver IRA or through direct cash purchases of silver.
Goldco has helped thousands of our customers benefit from owning silver over the years. With over $2 billion in precious metals placements and thousands of satisfied customers, we pride ourselves on customer service and satisfaction.
Whether you’re looking to protect your retirement savings with a silver IRA or just looking to buy some silver coins to sock away at home, we offer silver purchase options for everyone. Call Goldco today to learn more about how you can benefit from owning silver.
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.
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