All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run / Commodities / Gold & Silver 2024
Allthat glitters isn’t gold.
Silveralso has quite a shine lately.
Whilegold has gotten the headlines, silverhas had a solid bull run over the last several months. In fact, the white metal has outperformed gold inthis gold bull market.
Lastweek, silver charted an 11 percent gain, cracking $30 an ounce for the firsttime in over a decade.
Andsince its low in February, Silver is up over 41 percent. Meanwhile, gold is upabout 22 percent in the same period.
Thismight seem unusual, but it's not. Silver typically outperforms gold in a goldbull market.
Forinstance, gold charted a gain of around 40 percent during the pandemic.Meanwhile, silver was up a whopping 141 percent!
Thisis because despite most focus being on its industrial demand, silver is fundamentally a monetary metal, and its pricegenerally tracks with gold over time.
PeterKrauth, author of The Great Silver Bull pointed out during a recent interview that silver was money even before gold.
“Because silver relative to gold has a lowervalue by weight, it is easier to use in daily transactions. I've heard before,a few times, that it's estimated that throughout history, there has been morebusiness transacted through silver than gold, because gold is a way that youstore wealth rather than use it to transact. Obviously, it makes for greatmoney, and it makes for ideal money when you're doing larger transactionsbecause you need to transport less and move less around to make large payments.… Today, a silver maple or a silver eagle, let's say, roughly worth about $30,$35 or so, is a few hours of labor. You could technically go out and buygroceries with that, pay for some meals, pay for some gasoline. It really is adaily, natural form of money compared to gold. You'd need to have fractions ofan ounce of gold to pay for things. All of these reasons, I think, explain whyit makes, and has made a perfect kind of money.”
Sincesilver and gold are both money, it makes sense that their prices wouldgenerally track together over time.
SilverIs Still Underpriced
Despitethe recent gains, silver is still underpriced compared to gold.
Thegold-silver ratio is a tool that investors use to track the price of silver andgold relative to each other. Today, that ratio still stands at 76:1. That meansit takes about 76 ounces of silver to buy one ounce of gold. Or you can look atit the other way and say one ounce of gold will buy 76 ounces of silver.
Toput the current gold-silver ratio into historical context, in the modern era,it has averaged between 40-1 and 60-1. Over the last 20 years, it has averaged68-1.
Inother words, even with the recent rally in the silver price, the gold-silverratio is still above the 20-year average and far above the average in themodern era. This indicates the price of silver still needs to increase by asizeable amount to close the gap.
Wehave also seen that when the gold-silver ratio gets far above the high end ofthat historical average, it tends to snap back to the mean with a vengeance.
Forinstance, in 2020, the gold-silver ratio set a record of 123-1 as COVIDhysteria gripped the world and then plunged to around 60-1 as central banksaround the world cranked up the money creation machine to cope with governmentsshutting down economies.
Inanother example of this big correction, the gold-silver ratio fell to 30-1 in2011 after rising to over 80-1 during the money creation of the Great Recessionin the wake of the 2008 financial crisis.
Froma historical perspective, when you see gold-silver ratios well above theirhistorical average, it tells you that silver is underpriced compared to gold.That indicates there is a strong possibility that silver will go on a bull runto close that gap. Historically, this has often happened in the midst of a goldbull rally.
Therecent silver rally has been impressive and there is reason to believe it stillhas legs. If you’re bullish on gold, you should probably be even more bullishon silver.
By Mke Maharrey
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. Heholds a BS in accounting from the University of Kentucky and a BA in journalismfrom the University of South Florida.
© 2024 Mike Maharrey - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.