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Historical Averages Show Silver to Take Over Gold

This summer was an exciting one for the gold markets. Investors have been able to buy gold and watch as prices have climbed past their original 2011 highs. Gold burst through to £1,200 and looks set to go even higher.

Silver, on the other hand, has been languishing far below its 2011 peak, having lost half its value since then. But don’t let silver’s underperformance fool you. Based on one metric, silver is greatly undervalued relative to gold, and if history is any guide, investors can expect silver to take over gold and make far greater gains in the coming months.

The gold/silver ratio hits an extreme

One of the things investors like to look at when deciding whether to invest in silver is to calculate just how fairly-valued it is, relative to other assets, whether that be stocks, barrels of oil, or gold for instance. The gold/silver ratio is one of the best ways of measuring which metal could prove to be a better investment for some handsome gains

This is because the two metals have traded in a fairly consistent price pattern for the last half-century.

Since the late-1960s, gold prices have never traded at much more than 81 times the price of silver, as measured in one troy ounce for each metal. In this fifty-year period, gold has had an average value of about 57 times that of silver per troy ounce.

At the latest count, gold is priced at about 84 times the value of silver, meaning it is actually above the historical upper bound, and silver is chronically undervalued relative to it. Whenever gold has been anywhere near this level of overvaluation, like the law of gravity, the ratio has always returned back to this long-term historical average and allowed silver to take over gold as the dominant force in the relationship.  

The silver dividend

If prices are to return from their current levels, to ensure a fairer pricing for silver relative to gold, you could expect the price of silver to leap from just £14.51 currently, to a valuation of as much as £21 per troy ounce. Imagine a price rally of that magnitude – gold is already touching new all-time highs already. Why not silver too?

As noted, silver prices are half what they were at their all-time high in 2011 at the time of writing, so if silver proves capable of returning to its historical valuation relative to gold, there’s nothing to stop silver going even further, and potentially breaking out to higher highs.

It’s all the more attractive an idea to buy silver, especially when you consider that silver is the more volatile cousin to gold. While gold prices soared a respectable 600 per cent between 1998 and 2011, silver managed to outperform it, rallying as much as 1,000 per cent in the same period.

Silver can also serve as a useful leading indicator of the overall direction of precious metals. Its bull market in the 1990s actually began almost two full years before gold, and silver famously peaked in value in April 2011, months before the gold price, signalling the risk of a multi-year bear market in the making.

It’s a tried and tested way of knowing where precious metals are going, so investing in silver could be a useful guide to seeing how your precious metals portfolio might perform over any given period.

Catch silver before it goes

Silver is not only used as an investment by many. It actually gets a great amount of its intrinsic value from its usefulness in a number of things. This includes its use as an industrial metal, with the average smartphone containing small traces of silver.

Silver is also useful as a conductive metal, for the construction of photovoltaic cells, to help generate solar power. You can even find silver has its uses in the world of medicine. Silver has antibacterial properties, so doctors are able to use it as a disinfectant, saving lives all over the world.

Silver’s usefulness in these areas means it has greater overall demand, as it gets consumed at a greater rate than gold and explains why some investors prefer silver over gold in their portfolios. If we end up chucking our devices with traces of silver inside them into landfills, that’s silver that will prove tricky to recycle and return into circulation, meaning every bit of silver becomes intrinsically more valuable as time wears on.

Silver to invest in

With all of these factors in mind, you might be considering making investments in silver, but you might also be wondering who to turn to.

Here at the Gold Bullion Company, we have just some of the items you might wish to consider looking at if you are thinking of buying silver today.

Our VAT-free silver items are especially attractive, as we ensure that your investments are stored in a state-of-the-art London Bullion Market Association vault. They only become VAT-able upon removal from the vault. Make the most of our one-year’s-free-storage offer, as this could save you from £70 to well in excess of £1,000 in fully insured storage charges.

Alternatively, we offer a wide range of silver coins which enjoy Capital Gains Tax-free status. This includes our one-ounce 2019 Silver Britannia coin, depicting Britannia brandishing her trident, as an enduring symbol of national pride.

This year also happens to be the Year of the Earth Pig, so for any of you who are interested in the Oriental Lunar Calendar Cycle, why not check out our Lunar Year of the Pig coin? The Earth Pig sign is a twelve-year occurrence, and traditionally gets associated with long-term planning, patience and responsibility. What a perfect set of qualities, when considering investing in silver.

Article Last Updated: Friday, September 27, 2019