Gold and silver are both traditionally thought of as safe haven investments. They are the “fire insurance” investments you head towards when the economy and all other monetary holdings appear to be going up in smoke. Historically, both metals have been thought of as a means of monetary exchange or currency. With the two running so similarly to one other it can be difficult to decide which of the precious metals has greater investment potential.
In the past, during times of economic difficulty, silver has almost always outperformed gold. For instance, during the early months of the pandemic we saw silver run circles around its yellow counterpart. Silver saw a spike that was 106.6% higher than its low during March 2020.
Another important thing to consider when deciding between investing in gold or silver, is the gold-silver ratio. Geologists estimate that there are roughly 19 oz of silver for every ounce of gold existing on this earth. If you examine the ratio of mined metals, that ratio is down to 11:1. There have even been times in the past, such as during the time of the Egyptians where gold and silver were valued equally at a 1:1 ratio. Back in 1792 the United States fixed the gold-silver ratio by law at 15:1. France acted similarly by establishing the same 15:1 ratio in 1803. However, in 1873 The US and many other western nations de-monetized silver in the Coinage act of 1873. This effectively created a widening gap in the gold-silver ratio. Since the enactment of the Coinage act, the gold silver ratio has hovered around 40:1 or 50:1 throughout the last hundred years.
So, what does the gold-silver ratio tell us today? According to Jason Hamlin, a commodities analyst, “The gold-silver ratio has been one of the most reliable technical ‘buy’ indicators for silver, whenever the ratio climbs above 80.” Today, the gold-silver ratio is sitting right at that threshold at 78:1.
Even with whispers from the Fed that QE may be tapered in the near future, most feel that this decision will be short-lived and widespread QE will be restarted with vigor in order to keep a faltering economy afloat. The more QE that occurs, the more bullish the markets are for both gold and silver.
If you consider the impact of QE, inflation, tired markets and the current gold-silver ratio, the decision to pursue silver over other investment options is a no brainer. Silver remains poised and ready for a significant bull run and you want to be sure to be on that bandwagon before it takes off without you.