Although it is a precious metal with multiple applications in the field of industry and jewelry, silver has traditionally been considered the ‘poor man’s gold’, due to its cheaper price. However, various factors could come into play and make this metal a very interesting bet in the field of investment for the future.
From Guardian Gold they have wanted to focus their attention on silver and explore the possibilities it has for investment, compared to its ‘rich brother’, goldco review.
1. – The historical evolution of the gold/silver ratio
This ratio measures the number of ounces of silver needed to purchase one ounce of gold. It is determined by dividing the spot price of gold by that of silver at any given time.
Looking at it from a historical perspective, this ratio gives an idea of how the market values gold and silver at any given time, which metal is most popular with investors, and which may be undervalued or overvalued.
Thus, the higher the ratio, the more ounces of silver will be required to buy one ounce of gold and vice versa.
Despite the volatility that this magnitude has shown over the last 30 years, its average is close to 60. According to Guardian Gold analysts, this means that when the ratio is above 60 points, buying silver is a good decision from a historical perspective.
In 2020, the ratio shot up to 120 points, doubling the average of the last three decades. This indicated that this was one of the best possible times to sell gold and buy silver. In fact, during the next 12 months, the appreciation of silver was considerably higher than that of gold.
At the moment, the ratio is around 85 points, above the average of the last 30 years. This indicates that it is advisable to invest in silver right now. In case it falls below 50 points, it would be a good time to sell silver and buy gold, since it tends to appreciate when these levels are reached.
2. – Greater volatility
Although volatility is not a desirable quality when it comes to investing, it can sometimes work to your advantage. Investors looking for assets that move faster than gold will find silver interesting as it has multiple opportunities to outperform gold’s appreciation.
The silver market is considerably smaller than gold, so it moves in a larger range. According to Guardian Gold, this is why younger investors who don’t mind volatility are drawn to silver, which has the ability to outpace gold’s appreciation at times of bullish precious metal markets.
This happened, for example, in the year 2020, in which the price of gold in dollars increased by 24%, while that of silver rose no less than 47.5%.
The average volatility of silver is usually over 30%, doubling the average for gold, which is 15.8%.
3. – Lower accumulated stocks
As of today, the accumulated stock of gold is estimated at around 200,000 tons. Most of the gold that has been mined from the earth is recycled and not consumed in industry. For its part, silver has a stock of some two million tons, 40% destined for industrial uses; another 40% as raw material for jewelry and silverware; and a small part in the form of investment bars and coins.
Given the scarcity of these silver stocks, it is common that in the months with the highest demand for metal it is very difficult to find bars and coins, so investors must wait for refineries to replenish production.
In the event that industrial demand continues to grow, it could be the case that the silver market enters a situation of supply deficit, which could be a favorable factor for a rise in the price of the metal.
4. – Greater industrial applications
Silver has a huge number of industrial applications, many more than gold: from the medical to the chemical sector, including the manufacture of solar panels. The unique properties of silver cannot be replicated by other metals, which is a huge advantage over gold.
Devices such as computers, mobile phones, vehicles… contain silver. Many of its applications, such as solar panels and electric vehicles, are industries that are growing and will require a lot of raw materials in the coming years.
5. – Development of electric vehicles
One of the new emerging markets that will require a huge demand for silver will be electric vehicles. At the moment, it is a fairly small market, but it will experience enormous development in the coming years.
Virtually every component of an electric vehicle requires a small amount of money. It is estimated that the demand from the electric vehicle sector will grow to exceed 90 million ounces (2,800 Tm) per year by the year 2025. A figure equivalent to almost 10% of the total demand.
This increase, combined with a more than tight supply from the mines, could cause the silver market to enter a deficit situation for the next few years.