COMMENTARY – Undervalued silver jumps, gold:silver ratio drops


By David Brough

Silver prices jumped this week and were up over 18 percent in May, lifted by heightened investor interest from undervalued levels as silver accelerated more quickly than gold.

Silver notched up the biggest monthly gain since January 2012 to touch $17.81 per ounce in late trade on May 29, up 2.3 percent on the day. Gold was on track for an over 3 percent monthly rise.

Flows to silver exchange-traded funds (ETFs) have surged, driven by growing investor sentiment that silver was undervalued versus gold due to a historically high gold-silver price ratio, which exceeded 100 for months.

The gold-silver ratio (i.e. how many ounces of silver it takes to buy an ounce of gold) had slipped to 97 late on May 29, still high by historic levels.

Silver prices have tended to roughly track gold, but that linkage has softened in recent times as silver, traditionally known as a jewellery metal and for its use in coins, has been used increasingly in industrial applications, notably electronics.

As the global economy slowly reopens, with coronavirus-driven lockdowns starting to ease, industrial demand for silver is expected to pick up again. Central bank stimulus should reinforce this trend.

“Traders are looking for the gold-silver ratio to continue its decline as silver continues its recent outperformance,” wrote Allen Sykora of Kitco News earlier in May.

“The view is not unanimous, however, as some traders worry that renewed trade tensions between the U.S. and China could dent industrial demand for silver.”

Lawrie Williams, precious metals commentator for bullion dealer Sharps Pixley, said the buoyant investor flows into silver ETFs signalled the metal had gained favour with investors again.

“There is still some big investor interest in the metal which does signify that there may be something of an improvement ahead,” Williams wrote.

“This is being seen in particular in the big silver ETFs.”

The surge of silver prices in May should be treated with caution, however, in light of the metal’s extraordinary historic volatility.

Silver’s erratic shifts over time have encouraged its description as “the devil’s metal”!

Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as investment advice.

COMMENTARY – Undervalued silver jumps, gold:silver ratio drops