Silver Investors Should Be So Lucky

Weekly Reports | Nov 23 2021

Silver investors should be so lucky as the grey metal emerges from the coat tails of its big sister

By Tim Boreham, Editor, The New Criterion

In the past, silver has been akin to younger brothers and sisters seeking to hang out with their older sibling – gold, that is and much to the yellow metal’s annoyance.

As time goes by, the little kids develop their own confidence and forge their own career and persona.

In the past we’ve compared gold and silver with Kylie and Dannii, but in reality ‘little’ Dannii has long emerged from the coat-tails of the Singing Budgie.

The same thing is happening with the ‘real’ gold and silver.

For the last century metals have traded in sync with each other, as measured by the  gold-silver ratio, or GSR.

On average  gold has been worth 45 times more than silver.

In 2011 when silver hit a record US$46 an ounce, the GSR fell to around 30 times.

With gold currently trading at US$1845 an ounce and silver at US$24.80 an ounce, the GSR has blown out to 74 times and Kylie again is overshadowing Dannii (or Venus is eclipsing the more successful Serena, as measured by grand slam titles).

For those who believe that valuations will always revert to the average over time, either silver is undervalued - or gold is overvalued.

The investment thesis with both metals is they are hedges against rampant inflation and general financial or geopolitical tumult.

Given the inflation concerns both here and in the US, gold and silver should be on a roll. Indeed, they’ve rallied in the past month or so but have still fallen 12% and 14% from their recent peaks in early August 2020 and early February 2021.

One reason is that higher interest rates – usually part and parcel of inflation – are a negative influence, because they improve returns on other investments relative to the non-incoming producing metals.

But bear in mind that in nominal terms – that is, allowing for inflation - interest rates remain in negative territory.


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