While the gold price remains largely constant – precious metal investors are turning a beady eye over to a silver price chart and wondering what happens next. While we’ve been waxing lyrical about the stagnating gold price, there have been some mighty strange things occurring in the world of silver.
So what’s going on with gold and silver?
The relationship between the gold price and the silver price has historically been of great interest to investors. While there’s no exact ‘normal ratio’ figure, investors generally think that if one becomes noticeably cheaper or more expensive, relative to the other, then a correction is imminent.
As the more volatile of the two, it’s generally silver that jumps or drops in price to ‘meet’ gold at a healthy ratio – rather than the other way round.
And that’s precisely why there’s so much buzz around silver at the moment. Silver is currently much cheaper, relative to gold, than has historically been the case. If investors are right, then an imminent ‘correction’ of the silver price would see it soar in value – potentially very soon.
The precious metals golden ratio
Precious metal investors like to think that the ‘rightful’ ratio between gold and silver is around 16:1, making a troy ounce of gold around 16 times the price of silver. In reality, this hasn’t really been the case for decades – indeed we haven’t seen a ratio lower than 29:1 since before 1980.
Since then, a healthier ratio generally sits between 50:1 and 70:1. Right now, however, it’s fast approaching 80:1. Based on the average annual volatility rates, this is the highest it’s been since 1993. You can see this for yourself on the chart below.
When the ratio between gold and silver rises, it tends to fall again pretty quickly. There’s no guarantee that prices over the next few months and year will follow historical trends, but if patterns are to repeat themselves, then the price of silver might be about to move very quickly in one direction.
The volatility of silver
If that wasn’t all curious enough already – the average annual volatility rates of silver in 2017 were also at their lowest point since 2000. Generally, silver is a lot more volatile than gold. But by its own standards, silver has been moving at far less precarious a rate over the past 18 months to two years than we’ve seen in quite some time.
You can see the volatility rates of silver since 1968 on this chart below.
Curiouser and curiouser.
What happens now?
There’s never a guarantee, but we think that it’s pretty likely that the price of silver is about to rise. Sure, it might not rise tomorrow – but the fact that it’s behaving strangely by two completely unrelated metrics is nothing if not a warning sign.
Buy VAT free silver
Where all investment gold is VAT free, investment silver is unfortunately not. This means that in current circumstances the silver price will have to rise by at least 20 per cent before investors can hope to make any returns.
To say that this is a cause of frustration to investors is certainly an understatement. With silver being a (historically) more volatile precious metal than gold, the market would otherwise be ripe for short term trading, and investors could take advantage of the quick fluctuations in price. With a blanket floor of 20 per cent on all trading prices however, this is impossible.
Luckily, the UKBullion company is currently offering a way of buying VAT free silver. This involves buying the product through the UKBullion Company and storing it in a secure, protected vault until the point of sale. No physical product means no VAT, so you’ll get returns from the full value by which silver appreciates over the period of your ownership. If the price is indeed about to rise, you’ll certainly appreciate this.