The gold price recently surged to unprecedented levels, surpassing the $3,000 per ounce milestone. This remarkable surge has been attributed to escalating geopolitical tensions, the revival of the trade wars, mounting inflation concerns, and of course, a very uncertain and very worrying outlook for the global economy and for the markets. As they always do, investors have once again flocked to the safe haven that gold unmistakably provides, pushing the price from record high to record high.
However, what is interesting this time is that silver has failed to grab any of the spotlight, which presents a truly rare opportunity for shrewd investors with a long-term vision.
While gold has been dominating international headlines for months already with its record-breaking performance, its “little brother” has remained relatively subdued, currently trading around $29.59 per ounce. This disparity is reflected in the gold-to-silver ratio, which currently stands above 102:1, significantly higher than the historical average of around 50:1. Such an elevated figure suggests that silver is undervalued in relation to gold, pointing to a potential correction as market dynamics evolve.
Of course, as most of my clients and readers know very well by now, my primary focus has never been fixed upon price action or the temporary fluctuations of the precious metals market. This is why I personally don’t find the “$3000/oz” gold price record as exciting as many of my industry peers. Sure, it was psychological barrier and sure, it is meaningful that it was crossed with such ease, but that’s not the most impressive thing about gold’s performance. The bigger picture is far more interesting: the steady rise of the past years and the circumstances under which it occurred are far more telling and offered even more confirmatory evidence to those investors that hold precious metals for the right reasons.
The case for silver is similarly robust. Apart from the potential upside due to market fluctuations, the metal has an iron-clad fundamental case to support a solid outlook. In contrast to gold, silver has a kind of dual identity as both as investment asset and as an industrial metal. It has extensive applications in all kinds of industrial sectors, but especially in so-called “green technologies”, such as solar panels and electric vehicles, that have seen spectacular growth thanks to the “electrification” wave.
Countless governments, especially in the West, have been pushing for years to get rid of fossil fuels in favor of renewables and they have offered extremely attractive incentives, tax cuts and subsidies to anyone promising to do that. And while the demand is certainly there, the supply is not. Decades of underinvestment have led to supply constraints and as the demand steadily rises, likely upcoming shortages.
Even though, as mentioned before, price action is not my primary focus, it is worth noting that there are some interesting dynamics from the speculative side of silver’s demand. One of the reasons we’ve been seeing a weaker performance this time around is that a lot of the speculators that used to flock into silver for quick gains have migrated to crypto, which is why we’re seeing significant fluctuations and volatility there. This, of course, changes nothing about the fundamental investment case – if anything, it strengthens it, as the fact that there are less speculators in the metals market could reduce overall volatility going forward.
Given the current market conditions, and especially the price differential between the two precious metals, investors might consider increasing their silver position. The current price levels are still very attractive and keeping one’s savings in silver is a far superior strategy than sitting on piles of cash that constantly lose value or investing in seriously and artificially overvalued equities.
As silver prices rise and the gold to silver ratio drops, investors can start selling their silver holdings at a profit and reallocating into gold, thereby enhancing the overall value of their precious metals portfolio. This strategy takes advantage of silver’s currently attractive price levels and its anticipated price growth while maintaining a balanced investment in both metals. Most of all, it optimally protects investors and ordinary savers from the extreme risks that lie ahead, from intentional, further currency devaluation and loss of real purchasing power to a severe stock market decline and the possibility of an economic recession, which seems to be getting likelier by the day.
Finally, there’s another argument in favor of silver that many investors often fail to take into account. As governments all over the world keep getting in increasingly dire financial straits due to their ballooning debts, the old fears of gold confiscation are on the rise again in the minds of many physical metal owners. Silver can provide some added protection against extreme scenarios like that, since it has been historically spared from confiscation orders.
Claudio Grass, Hünenberg See, Switzerland. www.claudiograss.ch
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