Gold for first place, silver for second, bronze for third. That’s how it goes traditionally. Silver, close to the top, but not quite on top itself. It’s true that gold far outshines silver, especially when it comes to valuations. You can expect a troy ounce of gold to cost as much as £1,222 as of late September, but an equivalent troy ounce of silver would only cost you about £14.51.
But don’t let that cheap valuation fool you. Silver is renowned for its greater price volatility than gold, so while it might be underperforming relative to gold, if history is any guide, silver is potentially on the cusp of a significant price rally.
The gold/silver ratio – what is it?
When measuring the value of silver relative to gold, investors often turn to the gold/silver ratio. That means dividing the price of gold by the price of silver. Rather than giving you raw price data, which makes it all about gold’s raw value, the ratio balances it with silver and lets anyone interested in buying silver have the opportunity to measure whether the two metals are fairly priced.
Historically, the gold price (in pounds) has exceeded the price of silver at a ratio of 1:57 per troy ounce, on average, for the past half-century. However, the ratio has moved to an extreme valuation for gold, placing it at about 1:84 as of late September.
The ratio is suggesting that gold is significantly overvalued relative to silver, and whenever gold has hit such extreme valuations, silver has always undergone a period of outperformance, to rebalance the ratio back to its historical average.
To translate this into what this means for prices, if the price of gold rests at of £1,222 as of late September, based on historical averages, the price of silver should be worth closer to £21 per troy ounce at the time of writing, meaning silver is significantly undervalued at current prices.
Silver price volatility
Anyone who knows about the relationship between gold and silver will know that silver is far more volatile than gold. Despite the fact that gold is greatly overvalued relative to silver based on historical averages, silver investors have reaped the rewards of greater price rallies than gold has seen.
For example, when gold rallied from £170 in 1998 to almost £1,200 in 2011, it managed to make a gain of over 600 per cent in just over a decade, far outpacing the performance of stocks and shares. With silver, it was a completely different story.
Silver prices in 1998 were as low as £3 per troy ounce, but by the time they peaked in 2011 at about £29 per troy ounce, silver investors had enjoyed a price gain of almost 1,000 per cent in the same period. Such numbers are hard to come by in most asset classes in such a short timeframe.
Silver’s natural price volatility does mean its downswings can be more extreme as well, but silver tends to follow the overall trend that investors see when buying gold. In some cases, silver serves as a leading indicator for gold. For example, silver bottomed out in 1997, two years before gold did, and peaked first in April 2011, in advance of gold’s own price peak just four months later.
Think of it as the canary in the precious metals coal mine.
Industrial demand for silver
What distinguishes silver from gold is its intrinsic value as an industrial metal. Not only do people buy silver for use as an investment or a safe haven; silver has a special role, as one of the most useful precious metals, when it comes to consumer products.
Silver can be found in a number of things, including smartphones, in small traces. Silver is also highly useful for the construction of photovoltaic cells used for solar power. Silver even has its uses in the world of medicine, as it possesses anti-bacterial properties. Silver’s use as an industrial metal opens it up to having a potentially tighter supply than gold when you consider just how in-demand silver is in our daily lives.
Silver placed in smartphones could easily end up in a landfill, for example, meaning that despite silver’s greater natural abundance, our consumption of silver for use in consumer products is reducing the supply of it at a faster rate than we can mine it out of the ground.
Possible rally on the cards?
If a significant price rally is in the pipeline for silver, it could be the perfect time to invest in silver. UK Bullion provides a number of silver items worth considering.
We offer a range of silver coins, which are considered as UK legal tender, making them qualified as Capital Gains Tax-free investments. That means any profits you make from them as investments aren’t included in the calculations for liabilities on Capital Gains Tax.
Our one-ounce Silver Britannia for 2019 is a particularly special coin, showing Britannia in all her glory, while those with an interest in the signs of the Lunar Calendar might wish to check out our Lunar Year of the Pig coin. It’s a unique coin to get hold of, as the current Year of the Pig is related to the Earth element.
The Year of the Earth Pig is something that only occurs once every 12 years, meaning the next one won’t come around again until 2031! The Earth elemental symbol is often linked to patience, responsibility and long-term planning, so perhaps investing in this item suggests this is a wise investment to make.
Check out some of our silver bars, and make the most of investing in silver, resting safely in the knowledge that your investment has the potential to gain value under lock and key, in a state-of-the-art vault over in the United Arab Emirates.
If you are interested in holding VAT Free Silver but prefer your holding to be vaulted nearer to home then Watch This Space as we are negotiating a VAT Free Silver product that will be vaulted in the UK.