Silver and Gold Price Relationship

Credit: Flickr / Eric Golub / CC-BY 2.0

For many small investors, who prefer investments in precious metals this gray precious metal is preferred option over gold, for a simple reason – it’s the price. Similar to gold, it also fetches good returns when needed. But for this strategy to work effectively and to be beneficial, it’s very necessary that the silver price closely tracks the price of gold or in other words the silver-gold price ratio.

Recently it has seen that this ratio has become very volatile or can be said, silver has now started having its own price game and not directly having one to one relationship with the gold or in simpler words, it is no more directly proportional to the price of gold and is setting its own trends of price variation.  The year 2016 has been very good for silver investors and has paid multi-fold to those who had wisely invested in silver a couple of years ago.

The historical data proves that for more than four thousand years; silver has been treated as a form of money and store of value. But since the end of the silver standard (a monetary system in which the standard economic unit of account is a fixed weight of silver) globally, silver lost its role as a legal tender (money exchange) in all developed countries. The exceptions are the bullion and collector coins like the American Silver Eagle with nominal face values but it is known that they are not tendered for the face value and it is a different ball game altogether. Canadian Silver Maple Leaf is another example of it. Millions of Canadian Silver Maple Leaf coins and American Silver Eagle are purchased as investments each year.

The rising industrial applications of this grey metal and hence the rising demand by geometric progression is another reason for offsetting the ratio calculations. For the first time, the year 2016 has seen a few of the electronic industrial giants are entering forward contracts with the silver miners. Investment in silver is often made as a hedge against trouble in the stock market as is essentially the “Gold Jr.” The stock markets this year have been very jumpy, helping silver and gold prices glitter. As investors wanted to put their money in something more tangible.

For long-term concerns, it can be said that; silver’s price may be an indicator of gold, although not very precisely. But the trends show silver has, even more, room for upward mobility in terms of percentage gain.

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