Why American Investors Are Watching the Gold-to-Silver Ratio

Silver. 

Most investors know gold tends to rise in uncertain economic times.  

And with so much financial and geopolitical turmoil sweeping the globe right now, it’s easy to see why many Americans are looking into gold. 

Especially since gold broke its all-time high on March 6, and analysts forecast more record highs in the coming months. 

But silver isn’t soaring…  

Instead, it’s sitting about 60% below its record high. 

So, why are so many Americans looking into silver? 

Several strong economic reasons exist, and they’re supplying a lot of price support for precious metals in general. But the biggest “technical” reason many investors are focusing on silver right now is… 

The high gold-to-silver ratio 

Simply put, the gold-to-silver ratio is how much silver it would take to buy an ounce of gold, or how much silver an ounce of gold could buy.  

Today, gold is around $2,130 an ounce, and silver is priced around $24 an ounce.  

So, 2,130 divided by 24 is about 89.  

This means the current ratio is about 89:1—it would take about 89 ounces of silver to buy 1 ounce of gold. 

Why is this ratio so meaningful?  

It’s all about the historic correlation between gold and silver. 

In times of economic stress, silver’s price historically tends to rise when gold’s price rises as investors pour money into the precious metals sector. 

And right now, silver should theoretically be keeping pace with gold. 

Only, it isn’t. 

Instead, many investors consider it massively undervalued… available at a discount. 

And when the ratio between gold’s price and silver’s price is high like it is now, many investors expect silver’s price to rise over time as it starts to catch up with gold.  

As silver’s price rises, the ratio between gold and silver tends to move back to its average ratio through a process called “reversion to the mean.” 

For decades, the long-term ratio has averaged around 50:1.  

With the ratio sitting around 89:1 right now… 

Silver may have plenty of room to rise as the market adjusts. 

And with Fed rate cuts on the way, that market adjustment may be imminent. 

UBS precious metals strategist Joni Tevis says, “In a scenario where the Fed is easing, we think silver can do really well.”  

And, “Silver has been underperforming gold quite a lot. So, there is a lot of catching up to do and I think the move could be quite dramatic.” 

How dramatic? 

As you may recall, JP Morgan and Michael DiRienzo of the silver institute forecast a 10-year high of $30 an ounce in 2024. 

Another main driver for higher silver forecasts?  

Soaring industrial demand. 

Demand for the precious metal is growing because silver is an essential component for tech products in several expanding industries. 

The Silver Institute says, “After a challenging 2023, a projected recovery in consumer electronics will provide an additional lift to the silver industrial market.”  

As industrial demand soars, silver’s price may have nowhere to go but up, and the Institute says, “the sector should hit a new annual high this year.”  

Silver may also see long-term price support from a breakthrough in solar technology because the new n-type solar cells use a lot of silver. 

In fact, researchers at the University of New South Wales say over 20% of the world’s silver supply may go to solar panel manufacturers by 2027. And by 2050, that number could jump to a whopping 85–98%. 

Bottom line: 

The gold-to-silver ratio is extremely high.  

And if inflation retreats toward the Fed’s 2% target rate, the Silver Institute says, “The impact of falling real yields and the pressure on the U.S. dollar could also favor fresh silver and gold investment.” 

This flood of fresh buying on top of increased industrial demand, coupled with a “reversion to the mean” of the gold-to-sliver ratio… could push the precious metal’s price much higher in the coming weeks and months.  

And if the popular investing sentiment reflected in Google searches is a reliable indicator, the trend may already be underway. 

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