Gold has had a nice run over the last few months and it's garnered a lot of attention. Silver has kind of gotten lost in the shadow of gold's shine. But as host Mike Maharrey explains in this episode of the Money Metals' Midweek Memo, people should be paying attention to silver. It has outperformed gold in this gold bull market and there are plenty of reasons to believe the silver bull has a lot of leg left.
All that glitters is not gold!
Gold generally gets the spotlight in the investment world, but you shouldn’t ignore silver. In fact, silver has had quite a shine of late.
Silver is a great way to get into precious metals if you don’t have a lot of money to invest. Sometimes people call silver the “poor man’s gold.” But you shouldn’t construe that as saying silver will make you poor. It’s a lot better to hold your wealth in silver than it is in rapidly depreciating dollars.
Last month, silver cracked $30 per ounce for the first time in over a decade, and as Mike explains, there are plenty of reasons to think the silver rally is just getting started.
Mike points out that silver has outperformed gold in the recent gold bull run. This shouldn't come as a surprise because this has historically been the case.
"So, if you’re bullish on gold, you should be even more bullish on silver. I’ll give you an example. Remember how gold skyrocketed during the pandemic? The price set what was at the time was a record. Gold was up about 40 percent. But get this – in that same period, silver gained a whopping 441 percent! And it didn’t even breach $30 back then. The last time we saw silver over $30 an ounce was in 2011 when the economy was mired in the Great Recession."
Mike notes that the silver price in the short term tends to be a lot more volatile than gold. That's because 50 to 60 percent of silver demand comes from industrial uses. But fundamentally, silver is money and the price trend tends to track with gold over time.
Mike explains that there are plenty of fundamentals to support a bullish attitude toward silver.
"First off, even with the recent rally, silver is still underpriced. That means it’s cheap, especially when priced compared to gold."
Mike explains how investors use the gold-silver ratio to track the price of silver and gold relative to each other. Today, that spread is wide in historical terms.
"Even with the recent rally in the silver price, the gold-silver ratio is still above the 20-year average and far above the average in the modern era. This indicates the price of silver still needs to increase by a sizeable amount to close the gap. We have also seen that when the gold-silver ratio gets far above the high end of that historical average, it tends to snap back to the mean with a vengeance. ... From a historical perspective, when you see gold-silver ratios well above their historical average, it tells you that silver is underpriced compared to gold. That indicates there is a strong possibility that silver will go on a bull run to close that gap. Historically, this has often happened in the midst of a gold bull rally."
Supply and demand dynamics are also supportive of silver. Silver demand outstripped supply for the third straight year in 2023 and analysts expect that to occur again in 2024. Industrial demand fueled by the green energy revolution is driving demand steadily higher.
"Due to its outstanding electrical conductivity, silver is an important element in the production of solar panels. It is used to conduct electrical charges out of the solar cell and into the system. Each solar panel only uses a small amount of silver, but with the demand for solar panels growing exponentially every year, those small amounts of silver add up."
This isn't the first time we've seen big silver supply deficits. It happened in the 1950s. That was one of the reasons Congress passed the Coinage Act of 1965. Under the law, the U.S. Treasury removed all of the silver from dimes, quarters, and half-dollars.
Mike explains that removing silver from coinage led to a rapid devaluation of the dollar.
"In 1964, the minimum wage stood at $1.25 per hour, the equivalent of five silver U.S. quarters. If you got paid five pre-1965 quarters today, you would hold $27.50 in your hands. There’s your living wage. We don’t have a wage problem. We have a money problem."
A movement of silver from West to East could boost the silver price. Asian demand, especially in China, has ramped up significantly in the last few months. It's following a pattern we saw with gold before its big breakout earlier this year.
"Taken together, there are a lot of reasons to be bullish on gold. We have the historical perspective, we have strong supply-demand dynamics, and we have a gold-silver ratio that indicates silver is still underpriced. All of that adds up to a buying opportunity, especially when we see dips below $30 like we saw yesterday. If you are interested in getting into silver, now is the time to call 800-800-1865."
Articles Mentioned in the Show
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About the Author
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
