Gold's record rise may have been the headlines this year, but silver is rising more sharply and faster, as this less attractive metal benefits from strong financial and industrial demand.

Silver surged nearly 25% in 2024, surpassing gold and becoming one of the top performing major commodities this year. However, silver is still relatively cheap. Currently, it takes about 80 ounces of silver to buy 1 ounce of gold, compared to the 20-year average of 68 ounces.

Gold to silver ratio

The trend of these two metals is basically the same because they both have similar macro and currency hedging characteristics. As gold hit a record high driven by central bank purchases, interest from Chinese retail investors soared, and bets on America's impending interest rate cuts heated up again, silver followed the trend. While investors aren't interested in silver-backed exchange-traded funds (ETFs), physical sales have picked up, including Singapore-based trader Silver Bullion Pte.

Founder Gregor Gregersen said, “Even customers who are interested in buying gold are starting to say 'OK, maybe I can buy silver first and wait for the ratio of gold to silver to be rebalanced'.” From April 1 to 25, the point of sale sold 74 ounces of physical silver for every ounce of gold sold, compared to an average of 44 ounces in 2023.

Relatively speaking, silver has begun to move closer to its more expensive “cousin.” As early as January, the gold-to-silver ratio was over 90 (that is, buying 1 ounce of gold requires 90 ounces or more of silver), the highest level since September 2022. Citigroup pointed out in a report that if the Federal Reserve continues to stick to its interest rate cut plan and economic growth remains strong in the second half of the year, then the gold to silver ratio may fall back to around 70, but the group also warned that the reverse will cause the gold to silver ratio to rise again.

As early as April 3, in his April 3 article “The Rotation of Feng Shui, the Silver Market, Gong Zang Meets Mobile Encounters”, he pointed out that a return to the average may drive silver prices: the 30-year average value of gold and silver is closer to 67, and in recent years it has been between 40 and 60. When this ratio is far beyond these ranges, it usually suddenly simply and crudely falls back within the mean range. The COVID-19 pandemic era, for example, provides a prime example. In the early days of the outbreak, gold skyrocketed due to a global economic disaster. The price of gold rose by 39%. At one point, it exceeded 2,000 US dollars/ounce, and the gold to silver ratio soared to over 100. But then silver also exploded, and the price soared to close to 30 US dollars/ounce, increasing 147%, causing the gold-silver ratio to drop from over 100 to slightly above 64, and back to the high end of the normal level in history.

As we all know, silver has dual characteristics. It is both a financial asset and an industrial input, including clean energy technology.

According to the Silver Association, this metal is the main component of solar panels, and with the industry's strong growth, silver usage is expected to reach a record high this year. In this context, the silver market will enter its fourth shortage year, and this year's shortage is considered the second-largest in history.

Silver is in short supply for the fourth year in a row

According to Silver Bullion's Gregersen, this has caused industrial users (often dependent on miner supplies) to search for silver by consuming major global inventories. The inventory volume tracked by the London Bullion Market Association (LBMA) fell to the second lowest level on record in April, while trading volume on the New York and Shanghai Exchanges was also close to seasonal lows.

Silver inventories tracked by LBMA are falling

TD Securities (TD Securities) said LBMA's inventory could be exhausted within the next two years, given the current rate of demand. Commodity strategist Daniel Ghali said in an April report that since ETF holdings are included, the headline numbers exaggerate the amount of silver available.

Gregersen said, “We will slowly see supply tightening as industrial demand will rise. If investors also start buying, then I think after two or three months, my biggest question is probably 'Where do I go to find supplies? '”