The Gold-Silver Ratio — What Investors Need to Know
Silver is a valuable metal that is frequently grouped with other commodities such as gold, platinum, and palladium by investors. The white metal is highly valued for its use in a variety of applications, ranging from jewellery and cutlery to industrial and medical equipment. It is the chosen metal for anything electrical due to its great conductivity, such as circuit boards, switches, televisions, smartphones, and appliances.
Investing in Gold and Silver
Investing in gold, silver, and other precious metals is a popular alternative to traditional investments such as equities and bonds. During political and economic uncertainty, the Federal Reserve prints more money, prompting many investors to turn to gold and silver to hedge risks or invest more defensively. Silver’s long-term demand has been stable over the years, and it, like gold, is an effective hedge against inflation and declining markets.
The Gold-Silver Ratio — What Investors Need to Know
Investors who monitor the gold and silver markets are unlikely to go long unless they are familiar with the gold-silver ratio. The gold-silver ratio represents the price relationship between gold and silver, as well as how many ounces of silver are required to match the value of one ounce of gold.
If gold is $1,000 per ounce and silver is $20 per ounce, the gold-silver ratio is 50:1. The gold-silver ratio trading strategy is popular among gold and silver investors. A frequent approach for investors to use the ratio is to hedge a long position in one metal, such as silver, and with a short position in the other, like gold.
While gold will always be the more valuable of the two metals, silver investment products have many advantages. Silver prices tend to climb in lockstep with gold prices, but with greater momentum. When combined with gold, silver is a good supplemental investment. Given the significantly lower cost per ounce, it is more economical and easy for investors seeking real bullion to purchase bigger quantities. While silver investment products have a lower entry point than gold, they fluctuate more and tend to grow in response to investor demand vs market conditions.
Global Silver Mining Sector
The majority of silver is derived from ores and is a byproduct of gold, copper, lead, and zinc production. Primary silver output is an exception rather than the rule when it comes to annual supply. Only around 28% of output is generated through primary silver mining, with the remaining 72% generated via byproduct mining ventures.
In 1980, the Hunts brothers attempted to corner the silver market and the value of the metal hit a modern-day all-time high of $50.36 per ounce. However, the metal’s price fell after they failed to meet a margin call on March 27, 1980. That day is now known as “Silver Thursday” among investors. Silver achieved a somewhat lower peak of $49.82 per ounce in 2011, when gold was around $1800, after years of poor pricing. The most recent high for silver was $30.35 per ounce in February 2021. Silver has since undergone lower highs and lower lows, but has remained around $20 for most of 2022.
Many investors are interested in silver mining in South America. Peru’s mining industry, for example, is an important aspect of the country’s economic growth, accounting for 10% of GDP and 60% of exports, making minerals the country’s top export industry. Peru is the largest silver producer in South America and the world’s second largest producer of silver.
While the price of silver fluctuates, silver miners tend to outperform the metal during rallies. Investors have turned to precious metals this year as with looming threats of inflation. While this is a silver mining blog, investors should also consider incorporating gold investment products to diversify their portfolio. We’ve listed a few ways you can invest in gold without storing bullion.
Investing in Gold Stocks and ETFs
Gold focused ETFs
Unlike physical gold, gold ETFs can be purchased on a stock exchange much like stocks. ETFs can provide investors with a simplified way to obtain exposure to gold without facing the expenses and trouble of markups, storage fees, and security risks associated with physical gold. Investors should keep in mind that ETFs have an expense ratio, which means they will lose a percentage of their investment as a recurring annual fee to cover management and administrative costs. The value of ETFs fluctuates in tandem with the market price of gold. Before investing in gold ETFs, as with any other investment, do your homework.
Investing in gold mining stocks can help diversify your portfolio while also providing protection from inflation, market volatility, and political and economic turmoil. Because gold is a scarce commodity that provides a long-term store of value, investing in companies that mine and produce have the potential of bringing long-term profits as well. Gold miners can also use the cash flow created by their activities to increase production, pay dividends, and repurchase shares. These investments and shareholder returns position gold mining companies to possibly provide higher total returns than gold price appreciation and outperform ETFs.
Gold and silver are complementary assets that can both hedge against risk and safeguard your portfolio. Like any investment product, however, be sure to perform your due diligence or seek the advice from a licensed advisor.