Chart of the Week

SILVER SHOULD OUTPERFORM GOLD FROM HERE

It’s a little surprising that silver hasn’t performed better of late.

In the five years to end March ’24, gold has produced a 72% gain in dollar terms, whilst silver is up 65%. That’s still a good outcome, but silver typically outperforms gold (by a lot) during major precious metals bull markets.

On a standalone basis this suggests the rally in precious metals has a lot further to go as we haven’t yet seen the blow-off top in silver that would usually mark the end of a bull market.

The chart below supports this constructive outlook and argues we may be on the cusp of a major move higher in the silver price.

It shows the gold price divided by the silver price. Over the past four decades, whenever this ratio has exceeded 80 it suggests gold is relatively expensive compared to silver, with the latter likely to outperform going forward. When the ratio heads towards 40, the converse is true.

For context, when the ratio hit a record 113 in early 2020, during the nadir of the Covid market sell-off, silver embarked upon a 140% price surge in just six months. Gold gained 40% over the same period. For clarity, the gold price still tends to rally strongly when this ratio falls, but silver typically outperforms.

We do not believe it will experience such an explosive move this time around, but a major bull market in silver is likely just getting started.

The ratio has been trading in a tight range between 80 and 95 for a while now. This means it is more likely to fall than rise from these levels, especially with the global economy witnessing a cyclical upswing. Silver plays a crucial role in various industrial processes helping its price rise (and the gold/silver ratio fall) during periods of accelerating global growth.