Silver is often called the poor man’s gold because it’s so price is so much lower than that of gold. This precious metal is often in the shadow of gold. However, it is also more volatile than gold and the price outpaces gold every time.
So, what drives the price of silver?
The events of this year have driven the price of most precious metals high. Interest in this grey metal has been high. The demand for silver had been growing since last year. In 2020, silver looked like it had been on steroids.
Interest has extended to private investors looking for a safe haven investment. So, let’s look at some of the key reasons why people buy silver bullion.
#1. Supply and demand
For centuries, silver has been used as money, turned into coinage. At the turn of the 20th century. The uses of silver charged.
The Central banks around the globe buy more gold than they do silver. 60% of gold bought annually is for industrial use while 10% of gold bought globally is for industrial use.
Silver and gold has different supply profiles. About two thirds of silver that comes from mining comes as a aby-product of other mining operations for metals like copper. Scrap Silver mostly comes from industrial production. It accounts for 18% of the annual silver supply.
#2. The Gold-to-silver Ratio
When comparing the Gold/Silver Ratio, it is clear that the cheaper silver metal has steadily lost its value. The gold /silver ratio has risen from 50:1 at the beginning of the 20th century to where it is currently at which is 80:1. However, there are a lot of silver traders and investors who believe that silver is grossly undervalued. It definitely looked cheap when the price of gold started climbing in March. In March, the Gold/Silver Ratio shot up to an all-time high that was above 125.
#3. The Volatility of silver went 80% higher than that of gold.
Even though gold and silver have fundamental differences, their prices still move along the same path or in the same direction. In fact over the last five decades, the price of silver has moved on average 76% of the time in the same direction as gold. This is mainly because the same sources that drive the price o gold also tend to affect the price of silver.
When silver falls, it falls harder and faster compared to gold. Looking back at the start of Covid-19 lockdowns in February to March: Silver plunged by 39.11% in a matter of four weeks. It then spike 65.8% week ending 6 August.
The bottom line is that the same things that drive investors to buy silver bullion are the same as those that drive the price of gold. Silver’s use as a store of value held true during the endless crises that we have seen in 2020. So, if you haven’t bought silver, you should do it now. The stimulus packages and the measures that government are likely to take to kick start the economy will have a profound impact on inflation. Buy silver bullion as a hedge against the unavoidable inflation on the horizon.