In 2019 it felt like silver was the forgotten metal. Gold had a very strong year and, priced in US Dollars, gained 13.59%. Palladium – with its incredible supply deficit – set continuous new price records and gained an unrivalled 50.11%. Platinum, another scarce metal, made steady gains of 19.59% for 2019.
The reality though, is that silver is not a bad investment - far from it. Statistically, silver actually gained 16.83% in value for 2019; rising from $15.44 to $18.04 per ounce. This is hardly a failure to attract demand and puts it ahead of gold in terms of price growth, meaning that in what was a stellar year for it, gold was actually the worst performing of the big four precious metals.
There are several reasons why gold is rising in investor opinion, but 2020 could be the year that they really chase silver as an investment option as well. First, the gold-silver ratio is at 86.13, meaning that many ounces of silver buys you an ounce of gold. The historical average is 60, and anything above is interpreted as silver being undervalued. July’s ratio of 93 was a result of a surge of gold demand in the summer, but the current 86 is still indicative of silver being cheaper than it perhaps should be. 85+ on the ratio is very tempting to investors, and given it technically outperformed gold in 2019, they will definitely be eyeing up a bullion bargain.
Chart showing the Gold-Silver price ratio for the past year.
Despite a 200 tonne increase in silver production in 2018, many mines reported slowing down their mining last year – whether due to industrial disputes or a lack of profitability for their mines. This will likely lead to a decrease in production when 2019’s official figures are released, but beyond that there’s a supply shortage for silver. 2018’s output was 28.47 tonnes of silver, while physical demand was 29.3 tonnes. This is one of the contributing factors to silver’s price gains in recent years.
The reason for silver’s demand is the growing tech usage, which hit a record high in 2019. Silver has strong electrical conductivity, and as a result is used in printed circuitboards for computers, televisions, smartphones, and an array of other gadgetry.
Central bank growth stimulation and reserve diversification has been a big help to gold’s overall demand and the subsequent price rises. Given the metal’s significant value difference with silver, banks could decide to diversify once again and stock up on silver – especially if there’s a supply shortage and prices look set to climb.
The final potential boost for silver in 2020 harks back to gold demand. There is an elastic relationship between gold demand and silver demand. When gold demand and prices rise, there is a delayed reaction which then sees silver demand and prices rise, and usually quickly given the relative low value of silver per ounce compared with other precious metals.