Silver has taken the saying “silver is the poor man’s gold” literally. Although both gold and silver have increased by over 37% over the past 12 months, silver prices have been rising quickly lately. In the past month, the price of silver has increased by 8.80% while the price of gold has increased by 6.70%.
By the way, the current gold rate is approximately $3,080, which is a record high level never previously seen in history.
So what is going on with silver when gold is reaching record highs?
Well, the all-time high price of silver was US$49.95 per ounce, a level it reached on January 17, 1980. Yes, let that sink in. 1980. Then in April 2011, silver hit US$47.94.
The silver rate today is nowhere close to these levels.
Silver soared above the US$30 level on May 17 and May 20, reaching a 12-year high of US$32.33 an ounce, following a sluggish start to 2024. On October 21, the price of silver peaked at US$34.20. By December 30, silver had dropped to $28.65. Since then, silver’s price has risen by more than 20%, and it is currently trading at about $34.45.
Over the past five years, silver has increased by 19.4% CAGR from trading below $16 in March 2020. Indeed, it has been an incredible run.
Key Drivers behind Silver’s big price breakout
So, what’s driving the price of silver? Most of the factors driving the rising price of silver are similar to what’s driving the price of gold.
Source: Macrotrends
Gold and silver have long been valued human possessions, and they have evolved into a hedge against inflation as well as a store of wealth.
The demand for gold and silver is not surprising given the current climate, in which geopolitical tensions and Trump tariffs raise the possibility of trade wars and increase uncertainty.
Strong industrial demand, particularly from cutting-edge sectors like solar energy and electric vehicles, is another factor in the case of silver. With all of these factors acting as tailwinds, silver prices are aiming to soar in 2025.
The fact that demand for silver will outpace supply in 2025 may be another important factor. In 2025, the world’s total silver supply is predicted to stay at 1.05 billion ounces, while the demand for silver is predicted to reach 1.20 billion ounces. The production of silver from mining is predicted to rise by 2% to 844 million ounces in 2025, a seven-year high. It is anticipated that this disparity will continue to raise the price of silver for the fifth consecutive year.
Will Silver prices go higher?
Yes, it’s possible. If the gold-silver ratio is to be believed.
Very closely watched, the ‘gold-silver ratio’ tracks how many ounces of silver are required to buy one ounce of gold. In the late 1980s, the gold-silver ratio used to be 70:1.
If the gold-silver ratio increases, it means, silver is undervalued (or gold is overvalued). Today, with gold at $3,080 and Silver at $34.45, the gold-silver ratio is 90:1. This shows that the silver price has more room to go higher if the ratio reverts to its long-term average.
Of course, another way for the ratio to correct is for the gold price to fall.
Supply in Sight
What could derail the big Silver bull run? An increase in supply, possibly. Already, Silver mining activities have increased in Mexico, Australia, Russia and Peru, where most production of silver takes place. These plants feed manufacturing plants in China, Taiwan, India as well as jewellery making in India, Thailand, China, and increasingly Egypt. As and when supply increases, a fall in price could be seen, but that scenario could be a few years away.
Summing Up
Diversifying your portfolio with an asset that has already performed is the last thing you should do unless you are convinced that it has legs to move on further. Making an informed investing decision based on your risk profile helps to buy, hold or sell assets for your long-term goals.
Whether Silver merits a place in your portfolio today cannot be said for certain.
We will know only with the benefit of hindsight whether this was the golden period for silver or not.
