Retail Turns To Silver: Metal Has Several Positive Attributes Versus Gold

In the stock market frenzy around stocks such as GameStop, AMC Entertainment, and Blackberry, numerous reports on social media suggest that retail investors are turning their attention to the precious metal that is silver. Indeed, many bullion dealers – including Sprott Money and TD Precious Metals – report they have no inventory of physical silver left to sell. Below we examine several fundamental aspects of silver, particularly in relation to gold and to the overall stock market.

Measured in Dollar Value, There Exists More Than 125 Times the Amount of Gold in the World Than Silver

According to Metals Focus and Statista, about 1 billion ounces of silver and 3,300 tonnes of gold, respectively, are produced each year. About 20% and 80% of the annual silver and gold produced, respectively, are made into jewelry.

Approximately three billion ounces of silver currently exist, per JM Bullion. The World Gold Council estimates that about 190,000 tonnes of gold, a number very close to the amount ever mined, exists in the world. The table below summarizes the current value of the amount mined and the value in existence for each metal.

Perhaps surprisingly, the value of gold mined each year is 6.6 times that of silver, and the value of gold held throughout the world is about 125 times that of silver. If this “value in existence ratio” were to move to 100x while gold maintained its value, silver would be priced at around US$34 ounce, up from today’s US$27.11 figure.

SILVER – SELECTED STATISTICS AND ESTIMATESSilverGold
Approximate Ounces Mined Annually, On a Global Basis (millions)1,00096
Current U.S. Dollar Price Per Ounce$27.11$1,849
Gold-Silver Price Ratio68.2
Value Mined Annually (US$ billions)$27.1$178.0
Ratio of Value of Gold Mined Annually/Value of Silved Mined Per Year6.6
Estimate of Ounces in Existence (millions)3,0005,542
Value of Precious Metal in Existence (US$ billions)$81$10,246
Ratio of Value of Gold in Existence to Value of Silver in Existence126.0
Note: Numerous sources outline that approximately 3.0 billion ounces of silver are said to be in bullion stocks. Sources vary widely on these figures however, with the resulting valuation thereby varying wildly.

Gold –Silver Ratio Approximately at 20-Year Average

A traditional way to measure silver in relation to gold is the gold-silver ratio, which simply is the price of gold per ounce divided by the price of silver per ounce. The current reading is 68.2, close to the 20-year average of 66.2. A rising ratio implies gold is outperforming silver and vice versa.

GOLD-SILVER RATIO

The ratio touched below 20 during the energy crisis in 1980 and peaked in April 2020 at around 115 at the height of the COVID-19 economic fears. While not in any way a prediction, if the index were to reach 50 while gold’s price remained unchanged, silver would be trading at about US$37.

Silver Has Little Correlation to the Overall Stock Market

Silver has both outperformed and underperformed the Dow Jones Industrial for prolonged periods over the past 30 years. In the figure below, a rising Dow-to-silver ratio implies Dow outperformance and vice versa. Until about eighteen months ago, silver had dramatically underperformed the overall stock market from the spring of 2011 through mid-2019.

DOW JONES-TO-SILVER RATIO GRAPH OVER LAST 30 YEARS

Long overlooked as a hedging tool, silver does seem to have two key positive attributes versus gold: the dollar amount in existence is a small fraction of that of gold; and the amount of silver mined annually is also far less than the world’s most widely held precious metal. Perhaps a neutral indicator is that the gold-silver ratio is well within historic norms. Silver has underperformed the stock market quite significantly over the past ten years.

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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