Precious metals like Gold and Silver have been key in preserving wealth, especially during inflation and market turmoil, valued for both their worth and as an inflation hedge.
Let us look at how these metals have fared in history:
Gold and Silver Returns: A Historical Perspective
In the past 20 years, Gold beat inflation 100% of the time, averaging 0.31% outperformance over the last decade. Silver lagged, beating inflation only 42% of the time with a 0.08% underperformance, but has consistently beat inflation in the last three years, signaling a shift.
Rolling Returns: Gold vs Silver
Silver’s rolling returns have been converging with Gold over the last seven years, signalling a shift in market dynamics and making it increasingly appealing.
What does history show?
Historically, Gold has been the more dominant player, often referred to as a safe haven in turbulent times.
Silver’s volatility stems from its dual role as a precious and industrial metal, making its price more sensitive to demand shifts in industries like electronics, green energy, and jewelry—unlike Gold, which is driven primarily by investment demand.
Supply and Demand Dynamics: Silver’s Deficit and Industrial Demand
One of the key factors driving Silver’s renewed appeal is that Silver faces a supply deficit, driven by rising industrial demand, especially in green energy and electronics. In 2023, the deficit stood at 184.3 Moz, and industrial demand is expected to rise by 9% in 2024.
(Source: World Silver Survey 2024)
Gold-to-Silver Ratio: An Opportunity?
The gold-silver ratio, simply put, is the number of units of silver that can be bought with one unit of gold. Here the unit considered is a troy ounce.
The Gold-to-Silver ratio, currently at 87 (vs. the historical average of 70), suggests Silver is undervalued. A similar situation in 2008 (with the ratio at 80) led to a dramatic rise in Silver prices by 2011.
Conclusion: Silver’s Time to Shine?
Silver’s recent performance, ongoing supply deficit, and the high Gold-to-Silver ratio make a strong case for its potential to rally and close the gap with Gold.
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