Is Silver Undervalued?

Silver Undervalued


In the world of precious metals, gold often steals the spotlight, but lately, it’s silver that’s quietly been outperforming its flashy cousin. While gold boasts a respectable 14% increase year-to-date, silver has stealthily surged ahead with an impressive 18% gain since the beginning of the year. 

Now, faced with these enticing opportunities, investors are left pondering: How should they allocate their funds between these two precious metals? 

Enter the Gold/Silver Ratio, a simple yet powerful tool used to determine the relative value of gold to silver. This ratio, calculated by dividing the current price of gold per ounce by the current price of silver per ounce, offers valuable insights into investor sentiment towards risk.

Historically, the  Gold/Silver Ratio has showcased unparalleled stability over time, dating back to the illustrious days of the Roman Empire, where it firmly held ground at a steadfast 12:1 ratio. Through periods of economic ebbs and flows, this ratio has stood as a steadfast beacon, providing investors with a reliable benchmark against market fluctuations. 

Even amidst the tumultuous waves of significant events, such as the roaring precious metals bull market of the early 1980s, the ratio remained remarkably consistent, hovering within the range of 15:1 to 17:1. However, following the United States’ departure from the gold standard, the landscape shifted dramatically, leading to a wide array of fluctuations in the ratio. This shift compelled investors to adopt a vigilant stance, closely monitoring the ratio for any glimmers of potential market opportunities amidst the uncertainty. 

By monitoring the Gold/Silver Ratio, investors gain valuable insights into market dynamics, enabling them to strategically manoeuvre through fluctuations and optimize their investment strategies. For instance, during extraordinary shifts in the ratio, such as the remarkable 119:1 ratio witnessed in March 2020, astute investors can capitalize on opportunities presented by undervalued assets.

Consider the case of silver’s plummet to under $13 per ounce in March 2020. Investors who identified silver’s undervaluation and went on to buy silver were handsomely rewarded as the price of silver doubled from March to August of that year. This exemplifies how a keen understanding of the Gold/Silver Ratio can translate into profitable investment decisions. 

Now, fast forward to April 2024, and we encounter the Gold/Silver Ratio at an astonishing 83.7. Viewed through a historical lens, this ratio appears exceptionally high, implying that silver may be undervalued. For investors keen on diversifying their portfolios, this scenario presents an enticing opportunity to bolster their silver holdings and potentially reap significant returns in the long run.

Returning to historical  Gold-silver Ratio wouldn’t be an anomaly; rather, it would be a return to the normalcy of free markets. Over centuries, free markets have proven to be remarkably effective guides, and if you share the belief that silver is undervalued, now may be an advantageous moment to buy silver for your portfolio.  

In conclusion, while gold may capture the headlines, it’s silver that’s quietly making waves in the market. With the Gold/Silver Ratio signalling a potential buying opportunity for silver, investors have the chance to review their portfolios and swap some of their precious metal investments for silver.

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