Why is Silver Price So Low Compared to Gold?

Why is Silver Price So Low Compared to Gold? Like gold, silver is considered a store of value. But it’s got so many other uses beyond its face value. Its price rises – and falls – for many of the same reasons that gold’s does.

The tarnishing of currency along with curbed interest rates, inflation, and instability in the political arena should all be to silver’s benefit. When confidence in monetary systems declines, silver and gold rise in relation to currency declines. In short, silver is an asset. And just like gold, it’s no one’s liability.

But silver is so much more. Silver as an industrial metal has countless uses, especially in the technology sector. As the world becomes ever more “plugged in”, silver’s uses will continue to increase. Cameras, cellphones, media storage, RFID chips, and computers – just to name a few items – all have a need for silver. So…

What’s the deal?

Few metals frustrate investors more than silver because it hasn’t kept pace with gold, yet.

Is There A Silver Supply Shortage?

Research into the uses of precious metals reveal new discoveries all the time. Silver can be used to ward off infections, fungus, and even unpleasant odors. These discoveries have resulted in silver’s use in the medical, biotech, automotive industries, and even fashion.

It’s also used to purify water and treat warts and bad breath. Hospitals even use paint with particles of silver to help combat infections.

And if you want to delve into an area of exciting demand? Silver’s application in solar power grew from just a million ounces in 2000 to about 50 million ounces in 2019 – which is about 5% of the annual supply of silver. In fact, all types of tech stocks are soaring right now. As solar power’s use increases, silver demand will also increase.

All of the above-mentioned uses don’t even take into account two other sources of silver demand – jewelry and investments. Together, these demand sources totaled around 400 million ounces in 2019.

All of this demand points to one thing.

A supply shortage. Around 80% of silver’s annual demand is derived from mining – the rest, scrap. When it comes to mining, there’s been a lack of newly discovered silver pockets. Silver miners are struggling to make money and investments in exploring new silver territory is nominal at best.

A lot of silver production is pure coincidence from mining for lead and zinc. These two metals are experiencing their own decrease in investment. Silver continuously has an annual deficit in supply/demand. Since 2015, there’s only been one year in which silver ran at a surplus. 2019 had a deficit of 30 million ounces.

So, why isn’t this leading to an increase in price?

2019’s Gold and Silver Predictions for 2020

Based on where these metals stood in 2019, such as the undervaluing of silver in relation to gold – a whopping 1:86 – analysts made several predictions for 2020:

• More top-level employees of JP Morgan would be indicted concerning the company’s manipulation of markets
• More countries would join in the effort to stimulate growth, potentially leading to an explosion in silver demand
• Technology will skyrocket around the world, and silver demand with it
• A decline in supply with an increase in demand should cause prices to soar

Now think about this – an incredible majority of the silver mined around the world is simply dumped, considered garbage.

And the cost to explore these dumpsites is more than it costs to mine directly from the earth. In a nutshell – it’s gone forever. On the contrary, nearly all of the world’s gold ever mined – ever – still exists in some manner.

What’s Going On In Silver Now?

In March 2020, the repricing of assets was in at full blast as market uncertainty pushed treasury notes higher and stock prices lower. It’s this volatile environment that crushes precious metals. This kind of uncertainty doesn’t fare well for metals of any kind. In the silver market, however, an interesting situation occurred.

Silver topped out at almost $19 an ounce at the end of February 2020. In March, silver dropped to a price of around $11 an ounce. These kinds of prices haven’t been seen since the meltdown of 2008.

Recently, silver prices soared to $28.39. What is going on in silver now, indeed.

Is Silver Undervalued?

In May, silver was still considered undervalued. As economies around the world begin to reopen, industrial demand should see a boost. Traders expect the gold-to-silver ratio to continue declining as silver continues outperforming.

But not all analysts are optimistic. Traders are worried that the trade tensions among the United States and China could put a stark dent in silver’s demand.

The gold-to-silver ratio was 127 in March. To put this into perspective, the ratio at time of press was 1:81.

If you’re considering investing in silver ETFs, now could be the time.

Will Silver Outrun Gold?

Naturally, investors tend to focus more on gold – record price increases might have something to do with that. But silver was on the rise – a cool 25% in July 2020. That’s the second-largest jump in history for silver, and yet this precious metal is currently still undervalued according to analysts.

Silver futures are gaining around the world and the beginning of August 2020 showed an increase in pricing up to $25 per ounce, due in part to those supply and demand concerns noted above.

While silver prices are experiencing all-time highs, so are gold’s. That said, silver’s gains might eventually outrun gold’s because global manufacturing and mining are expected to resume full force as economies reopen.

If history is any indication, for silver to truly outrun the price of gold – well, gold would probably have to be depleted entirely. But you can never say never, right?

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.