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Buying Silver When Gold is Strong Could Be a Great Strategy

When thinking of something one can hold that has been a store of value throughout the ages, it is hard to beat gold and silver.  People’s faith in the two metals’ ability to store value continues to this day.  Suppose for the moment that one must choose between holding gold or silver for the remainder of 2019.  Which precious metal would you opt for?

The choice is, of course, no easy one.  If you are like many well diversified investors, you likely hold both metals.  But, suppose you must choose.  Would you opt for gold or silver?  

As for background, the first two figures below show the performance of silver and gold over the past few years.  In 2019, the first of 2019 has been ho-hum.  Silver’s price was $15.47 at the start of the year.  As of writing, silver’s price was $15.28.  This “keeping its value” performance through June 2019 is ok for the short term – especially when there is so much risk in stock investing right now – but in no way would work in the long term.  

Shifting to the price of gold, the yellow precious metal is off to an amazing start to 2019.  At the start of 2019, gold’s price was $1,282.  On July 5th, gold’s price per troy ounce had risen to $1,414 per troy ounce, representing a 10.3 percent gain through the first six months.  Health, healthy indeed.
Several reasons are behind gold’s run-up.  The reasons include concern about inflation, the global economy, unwise central bank policy, and new industrial uses of gold.  Overall, it has been a great start to 2019 for gold holders.


The Price of Silver in Relation to the Gold to Silver Ratio
With gold performing so strong and silver flat, one must be asking – When gold is in a boom period, should you buy silver?

The answer is a probably yes.  The evidence follows.  

The top part of the following chart, in pink, is the price of gold relative to the price of silver.  This is commonly known as the gold to silver ratio.  As indicated, the ratio bottomed recently in 2011 at around 31 and recently reached an almost all-time high of 93.

The bottom part of the figure has the price of gold and the price of silver.  The price of gold, in yellow, corresponds with the left axis.  The price of silver, in silver, corresponds with the right axis.  

On the chart are three vertical lines.  Going from left to right, the first line is for June 5, 2003.  At this point, the ratio of the price of gold to the price of silver reached a high of a little over 80.  If one looks at what the price of silver did following this peak, it was a good time to hold silver.

The middle silver vertical line is November 21, 2008.  At the time, the gold to silver ratio was about 85 and $8.90 was about the price of silver.  After the peak in the ratio, silver’s price rose quickly.  The price of silver went from $8.90 to a high of $48.70 on May 2, 2011.  The rise is almost unbelievable.  Silver’s price rise by about 450 percent in the space of just 2 ½ years.  Amazing.

The third line is February 29, 2016.  At the time, the gold to silver ratio was approximately 84.  Once this peak was reached, silver’s price went on a run again, going from about $15 to almost $21 over the next six months.  Amazing.
The Gold to Silver Ratio Today
Where does the gold to silver ratio stand today?  As of writing, the gold to silver ratio stood at 93, which is close to the all-time highs of the early 90s.  Presuming history is a reasonable guide in this case, silver is due for some strong price run-up in the coming months.  You might want to consider adding gold to your portfolio.