Both gold and silver prices have been heading higher for the year, but the price relationship between the two could portend to silver overtaking gold in the future.
Gold has been rising over 20% year-to-date, but silver hasn’t been far behind with a 17% gain. The two could switch leads if the gold-to-silver ratio indicates that silver is close to reaching a bottom.
Silver has been trending lower the past month, falling about 10% while gold continues to rally. However, according to FX Empire, the gold-silver ratio is reaching a ceiling and silver’s sell-off could be ending soon.
“The gold-to-silver ratio is a key indicator of the relative value between gold and silver, with peaks in this ratio signaling that silver is undervalued compared to gold,” FX Empire noted.
“Historically, these peaks are followed by a reversal, where silver begins to outperform gold, resulting in a strong rally in silver prices,” FX Empire added.
FX Empire noted in the chart below when silver prices reached a floor and the gold-to-silver ratio hit a peak. This happened in August 2022 as well as February of this year. If silver prices have reached a bottom, it could be an ideal area of value for investors to buy at the dip.
The Duality of Silver
Adding to the potential of silver technically is its fundamentals. The duality of silver as a precious metal and industrial metal gives it an additional catalyst, especially with regard to clean energy technology.
The global transition to clean energy could increase silver’s profile. The metal’s electric conductivity properties means it plays a key role in the increasing demand for electric vehicles (EVs) and other uses.
“The global energy transition requires many critical materials, including silver, which plays a significant role,” said Maria Smirnova, managing director at Sprott Inc., senior portfolio manager & chief investment officer for Sprott Asset Management. “Although renewable power generation and battery storage technologies may conjure visions of cobalt, lithium and nickel, we would argue that silver plays an even more fundamental role across several clean energy technologies.”
Given this growth potential, a fund worth considering is the Sprott Physical Silver Trust (PSLV). The fund provides exposure to the precious metal without the additional hassle of storing it. It invests in unencumbered and fully allocated London good delivery silver bars. Additionally, shareholders can redeem their shares for physical bullion anywhere in the world (subject to certain minimum conditions) if they want a more tangible investment experience.
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.
