Buy Low and Sell High with Silver

Precious metals should be the foundation a properly balanced portfolios is built upon. Physical precious metals are a way for investors to store wealth without assuming the risks associated with debt. Gold and silver are considered diversification tools and a way to offset inflation. However, due to supply and demand fundamentals, gold and silver moves independently and often varies in percentage growth. Generally, gold is utilized for stability and silver is utilized for upside potential.

Silver is Undervalued

Investors commonly utilize the historical gold-silver ratio to determine value when purchasing silver. Currently, the gold-silver ratio is 80 to 1. The gold-silver ratio is determined by simply taking the spot price of gold per ounce and dividing it by the spot price of silver per ounce. The gold-silver ratio is a common way to determine the upside potential in silver. For the past 200 years, the gold-silver ratio has fluctuated between 6-12 ounces of silver for every ounce of gold. It’s important to state, the Roman Empire officially set the ratio at 12 to 1 and thousands of years later the U.S. government officially set the ratio at 15 to 1 with the Coinage Act of 1792. Currently, silver would need to increase 5 times the rate of gold to return to a gold-silver ratio of 15 to 1. Once you understand the gold-silver ratio, it’s easy to understand why many investors currently consider silver to be undervalued and offer more upside potential than gold.

Supply and Demand Fundamentals

The global deficit in silver supply is expected to increase by 17% in 2024. The global silver supply deficits increased in 2021, 2022 and 2023 as well. Since 2021, there have been estimates of a cumulative deficit of 474 million ounces. Significant expansion of industrial demand for silver has been viewed as the cause for the imbalance in supply and demand. Many investors believe the shortage in silver supply and the heightened demand will cause silver to rise and most likely reach new all-time highs moving forward.

Inflation is the Catalyst for Silver

When inflation is present, goods, services, and commodities rise in value. Precious metals are commodities in limited supply. Silver is considered by many to be the most undervalued precious metal. Over the past 25 years, the spot price of silver has increased in value by approximately 450%. The increase in silver is due to rising inflation. For example, over the past 25 years, the U.S. government deficit has expanded exponentially, and this inflationary trend is expected to continue. The U.S. dollar is an example of a fiat currency. As government deficits rise, fiat currency values fall. As fiat currency values fall, precious metal values rise. This is why precious metals are commonly utilized by investors as an hedge against inflation. Over the past 3 years, inflation has risen by an accumulative 21%. Silver is currently valued at $29 per ounce. When you consider what $29 won’t purchase today, it’s easy to see why investors view silver as extremely undervalued and believe the white metal will reach new all-time highs.

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