[Insight & Opinion] Narrowing Gold-to-Silver Price Ratio... How Long Will Silver's Surge Last?

Silver Prices Reach 13-Year High
Relative Strength Driven by Hopes for Economic Recovery
Limited Upside Potential Amid Investment Frenzy

The price of silver has surged, reaching its highest level in 13 years. The price of silver per troy ounce, which is the trading unit for both gold and silver and equals 31.10 grams, is currently fluctuating between $35 and $36. This is the highest level since February 28, 2012, when it briefly surpassed $37, marking a 13-year high.

In contrast, the price of gold has been moving sideways after hitting an all-time high. On April 22, gold reached a record intraday high of $3,539 per troy ounce, but it has since fallen by more than $100 from that peak. As a result, the Gold to Silver Ratio (GSR), which is the price of gold divided by the price of silver, has declined. On April 2, when President Trump announced Liberation Day tariffs, the ratio exceeded 100, but it has now dropped to around 94. This means that 94 ounces of silver are needed to buy one ounce of gold, indicating that the value of silver has risen more sharply than that of gold. Consequently, interest in investing in silver has increased.

Gold and silver share many similarities. The amount that can be mined is limited, they do not corrode over time, and they are easy to store and transport. This is why they have served as currency in many regions for a long time. Historically, the gold-to-silver price ratio has generally moved between 12 and 16.

When the United States adopted the dual standard system in its early years, the gold-to-silver price ratio was set at 15 to 1. Interestingly, this ratio is similar to the ratio of gold to silver reserves in the Earth's crust. However, things changed in the 20th century. As the gold standard became established, the value of silver declined significantly. After the Bretton Woods system was introduced in 1944, fixing the gold-to-dollar exchange rate at $35 per troy ounce, the average gold-to-silver price ratio over the next 27 years was 33. After the collapse of the Bretton Woods system in 1971, when gold convertibility was suspended, the ratio rose to around 60, and the average over the past decade has reached 78. In summary, while the current ratio is above the historical average, it is also true that the ratio has continued to rise over time.

It is difficult to accurately predict fluctuations in the price of silver. Fundamentally, the silver market is not very liquid, so even relatively small purchases can cause significant price increases. The greatest appeal of silver is that it is much cheaper than gold, making it a less burdensome investment. This is why silver prices often surge following a rise in gold prices.

From an industrial perspective, silver differs from gold in that it has significant industrial demand. About half of the silver supplied is used for industrial purposes. This means that silver prices can be highly sensitive to economic fluctuations. Therefore, the relative strength of gold and silver prices, given their different uses, can serve as a psychological indicator of the economic outlook. Prices diverge depending on preferences for safe-haven assets and expectations for economic recovery.

When the economy is in recession, gold prices tend to rise, but silver prices can fall more sharply due to concerns about reduced industrial demand. Conversely, when gold is undervalued and silver is overvalued, causing the gold-to-silver price ratio to fall, it indicates that expectations for economic recovery outweigh preferences for safe-haven assets.

Perhaps the most important fact, as always, is that if even those who normally show no interest start investing, it usually means the issue has already peaked. Over the past five years, gold prices have risen by 79%, and silver has already increased by 81%. Considering the current state of the global economy, while there may still be some room for further gains, it does not seem very likely that silver prices will surge to $50 per troy ounce as they did in 2011.

Kim Sangchul, economic commentator