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Silver looks cheap when looking at the gold/silver price ratio back decades ago.
Gold’s price (XAUUSD:CUR) is up about 19% and silver (XAGUSD:CUR) is up 27% year-to-date, but silver is cheap compared to the price ratio of both back to 1990, according to research by DataTrek.
Gold (XAUUSD:CUR) broke new all-time highs yesterday, while silver (XAGUSD:CUR) is still below its 2011 top. But the gold/silver ratio, which has been a tool of valuation, is currently at 78:1.
“Gold (GLD) has managed to preserve its long-time reputation as a store of value, with just 7% of global demand from industrial uses (mostly in technology products),” wrote Nicholas Colas, co-founder of DataTrek. “By contrast, 57% of silver (SLV) demand comes from industrial sources.”
The gold/silver reserves ratio is 11:1, but gold has outpaced silver in terms of financial returns over the last 50 to 100 years. Since President Nixon, the gold/silver ratio went from 31x to 74x from 1972 to 1989, and since 1990, the ratio has fluctuated around a mean of 69.5x.
“Unsurprisingly, it tends to rise during periods of economic uncertainty, with peaks of 97x in early 1991 (Gulf War I), 79x in June 2003 (Gulf War II), December 2008 (Financial Crisis), and 112x in April 2020 (Pandemic Crisis),” said Colas.
As silver (XAGUSD:CUR) has outperformed gold (XAUUSD:CUR) year-to-date, its below average relative price could mean that it will do well through the end of the year compared to gold.
“The U.S. economy is on firm footing, and the rest of the world is doing reasonably well,” Colas concluded. “That is the historical backdrop for further cyclical gains in silver.”
However, he said that for long-term investments, gold is preferred.
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