🚨 Gold Price Surge and Silver Undervaluation: Gold-to-Silver Ratio Exceeds 100:1, Historical Imbalance and Investment Opportunities

Today Korean Economic News | 2025.04.24

📌 Gold Prices Soaring, Why is Silver Standing Still? Signs of Historical Undervaluation

💬 "The gold-to-silver price ratio exceeding 100:1 is a historically very unusual phenomenon. The current situation, which deviates significantly from the historical average of 16:1, suggests that silver is severely undervalued." Jeffrey Currie, precious metals analyst at Goldman Sachs, provided this analysis regarding the recent phenomenon where gold prices have reached an all-time high, surpassing $3,500 per troy ounce, while silver prices remain at around $35. Experts believe this abnormal gap implies the possibility of a sharp rise in silver prices in the future.

1️⃣ Easy to Understand

Recently, gold prices have been rising significantly while silver prices haven't increased much. I'll explain why this phenomenon is occurring and what it means for us in simple terms.

Gold prices have recently hit an all-time high, exceeding $3,500 per troy ounce. A troy ounce is a unit for measuring precious metals, equivalent to about 31.1 grams. Meanwhile, silver prices remain at around $35 per troy ounce. As a result, the gold-to-silver price ratio (gold-silver ratio) has exceeded 100:1, meaning that 1 ounce of gold has the same value as 100 ounces of silver.

Historically, the gold-silver ratio has typically remained between 16:1 and 30:1. In the 19th century, when the United States adopted the gold standard, this ratio was even legally fixed at 16:1. However, now that this ratio has exceeded 100:1, we are seeing an almost unprecedented level of imbalance in history.

Why has this happened? The reasons for gold's price increase include global economic uncertainty, geopolitical tensions, and increased gold purchases by central banks. Unlike gold, however, industrial demand accounts for about 60% of total silver demand. As industrial demand has decreased due to the global economic slowdown, silver prices have remained relatively stagnant.

However, many experts believe that the current gold-silver ratio is unsustainable and expect that silver prices will eventually rise to resolve this imbalance. In particular, with increasing demand for silver in new technology industries such as solar panels, electric vehicles, and 5G communications, many believe there is a high possibility of silver price increases in the medium to long term.

This situation can present an opportunity for investors. Historically, after the gold-silver ratio became extremely high, the ratio typically normalized as silver prices rose or gold prices fell. Of course, all investments carry risk, so decisions should be based on sufficient information and advice.

2️⃣ Economic Terms

📕 Gold-Silver Ratio

The gold-silver ratio is the value obtained by dividing the price of 1 ounce of gold by the price of 1 ounce of silver, representing the relative value between the two precious metals.

• Historically, it has maintained an average between 16:1 and 30:1, and if it significantly deviates from this range, one metal can be judged as overvalued or undervalued.
• When the gold-silver ratio is very high, silver can be considered relatively undervalued, and conversely, when it's low, gold can be interpreted as undervalued.

📕 Precious Metals Hedge

A precious metals hedge is a strategy of investing in precious metals such as gold and silver to protect asset value from inflation or economic uncertainty.

• Precious metals are considered 'safe-haven assets' as they tend to maintain their real value even when currency values fall.
• Precious metal prices tend to rise during economic crises or geopolitical instability, providing portfolio diversification effects.

📕 Supply Shortage

A supply shortage is a market situation that occurs when demand for a specific commodity or resource exceeds supply.

• In the case of silver, a supply shortage is expected due to decreased mining and increased industrial demand.
• Supply shortages generally lead to price increase pressure and, if sustained over the long term, can trigger market responses such as the development of alternatives or expanded mining.

📕 Industrial Metal

Industrial metals refer to metal resources primarily used in industrial activities such as manufacturing and construction.

• Silver, with its excellent electrical conductivity, is used in various industries including electronics, solar panels, and medical devices.
• Unlike gold, silver's industrial demand accounts for about 60% of total demand, making it more sensitive to economic fluctuations.

3️⃣ Principles and Economic Outlook

💡 Price Formation Principles of Gold and Silver and Causes of Current Imbalance

• Let's examine the price formation mechanisms of gold and silver and the causes of the current imbalance.

  • First, gold and silver differ in demand and usage. Gold demand is primarily formed by investment (about 45%), jewelry (about 35%), and central bank holdings (about 15%), with industrial demand accounting for only about 5%. In contrast, industrial demand makes up about 60% of total silver demand, with investment at 25% and jewelry and decorative uses at about 15%. Due to these differences in demand structure, gold primarily responds to economic uncertainty or inflation concerns, while silver reacts more sensitively to industrial production and economic cycles. Recently, as global economic uncertainty and geopolitical tensions have intensified, demand for gold as a safe-haven asset has surged, while industrial demand for silver has been relatively sluggish due to concerns about economic recession. Additionally, central banks' gold purchases have reached record high levels in 2024, driving up gold prices, but such public demand does not exist for silver.

  • Second, there are differences in the supply structure and market size of gold and silver. The gold market is approximately $12 trillion, much larger and more liquid than the silver market (about $1.5 trillion). While gold supply is relatively stable, silver is mainly produced as a byproduct of other metals (copper, lead, zinc, etc.), making its supply subject to more complex factors. In recent years, silver production has stagnated or slightly decreased, but overall supply has remained relatively stable as recycling supply has increased. However, experts predict that over the next five years, silver mining will decrease while industrial demand increases, leading to a supply shortage. Particularly, with a lack of new silver mine development projects and a trend of declining quality in existing mines, supply-side constraints are likely to intensify.

  • Third, investment psychology and market participant behavior also affect price imbalances. Gold has a firm status as a traditional safe-haven asset, attracting investors' attention whenever economic uncertainty rises. In contrast, silver, perceived strongly as an 'industrial metal,' tends to receive more attention during economic expansion periods. Recently, while capital inflows into gold ETFs (Exchange-Traded Funds) have significantly increased, inflows into silver ETFs have been relatively limited. Additionally, speculative buying positions for gold in the derivatives market have formed much more actively than for silver. These differences in investment psychology have contributed to widening the price gap between gold and silver.

• The price imbalance between gold and silver has occurred due to complex factors including differences in demand structure, changes in supply conditions, and differences in investment psychology. However, historically, such extreme imbalances have not lasted long, and eventually, adjustments toward market equilibrium have occurred. The current gold-silver ratio exceeding 100:1 is not sustainable, and it is highly likely to return to a more normal level through an increase in silver prices or an adjustment in gold prices in the future.

💡 Silver's Investment Value and Future Outlook

• Let's analyze whether silver is currently undervalued and what its future outlook might be.

  • First, silver demand is increasing due to technological advancements and the transition to green energy. Silver has the best electrical conductivity among all metals, making it an essential raw material for high-tech products. Solar panels use about 20g of silver per panel, and electric vehicles require more than twice as much silver as conventional internal combustion engine vehicles. Additionally, silver usage is increasing in 5G communication equipment, Internet of Things (IoT) devices, and medical devices. According to the Silver Institute, silver demand from the solar sector alone is expected to increase by more than 80 million ounces annually by 2030. This increase in industrial demand is likely to act as a factor driving up silver prices. In particular, as major countries accelerate their carbon neutrality policies and eco-friendly energy transitions, silver demand is expected to increase further.

  • Second, silver mining production is likely to stagnate or decrease. Global silver production has been stagnant since 2016, and some experts predict that production will decrease in the future. Mines in major silver-producing countries like Mexico and Peru are facing difficulties due to declining quality and strengthened environmental regulations. Additionally, since silver is mainly produced as a byproduct of other metals, it is also affected by copper or zinc mine production. There have been few large silver mine development projects in recent years, and it typically takes 7-10 years for a new mine to enter the production stage. These supply-side constraints will act as upward pressure on silver prices in the future. According to some analyses, the silver market may face a supply shortage of more than 100 million ounces annually by 2027.

  • Third, historical patterns suggest that the current gold-silver ratio is likely to adjust. Looking at past data, instances where the gold-silver ratio expanded beyond 80:1 were very rare, and after such situations occurred, the ratio typically normalized as silver prices rose. During the early 1990s and the 2008 financial crisis, after the gold-silver ratio surged, silver prices rose faster than gold, causing the ratio to fall. After the gold-silver ratio exceeded 80:1 immediately following the 2008 financial crisis, it fell to around 30:1 by 2011, during which silver prices rose about fivefold. The current gold-silver ratio exceeding 100:1 is not sustainable historically, and there is a possibility that silver prices will rise significantly in the coming years as this ratio normalizes.

• The future outlook for silver is positive considering increased industrial demand, supply-side constraints, and historical patterns. The current gold-silver ratio suggests that silver is historically undervalued, and there is a high possibility of silver price increases as this imbalance is resolved in the future. In particular, as the transition to eco-friendly energy and technological innovation accelerates, industrial demand for silver is expected to increase while supply remains limited, exerting upward pressure on silver prices in the medium to long term.

💡 Implications and Strategies for Investors

• Let's examine the implications of the historical imbalance in the gold-silver ratio for investors and effective response strategies.

  • First, there is a need to reconsider the role of silver in terms of portfolio diversification. Traditionally, gold has served as an inflation hedge and safe-haven asset, but silver, due to its characteristics as an industrial metal, may perform better during economic recovery periods. In situations like the present where gold prices are already high, adding silver to a portfolio can help diversify risk and enhance returns. In particular, as gold and silver may perform differently depending on the economic cycle and inflation environment, an appropriate combination of the two assets can be effective. For example, during the global economic recovery of 2009-2011, while gold rose by 79%, silver rose by 440%, showing a much better performance. Investors need to adjust the proportion of gold and silver according to their economic outlook and risk tolerance.

  • Second, various methods and timing should be considered when investing in silver. There are various ways to invest in silver, including purchasing physical silver, ETFs, and investing in mining stocks. Physical silver is the most direct investment method but may have storage and liquidity issues. ETFs are convenient and highly liquid but incur management costs. Silver mining stocks can offer greater returns during silver price increases due to leverage effects, but company-specific risks must also be assumed. In terms of investment timing, as short-term price volatility can be high, strategies like dollar-cost averaging can be effective. Also, in situations where the gold-silver ratio is extremely high, as it is currently, a strategy of converting some gold to silver is worth considering. Historically, investors who converted to silver when the gold-silver ratio was above 80:1 often achieved high returns.

  • Third, a cautious approach is necessary, considering risk management and macroeconomic factors. Silver has higher volatility than gold and is sensitive to industrial demand, so there is a possibility of further decline in the short term if the global economic recession intensifies. Additionally, long-term demand outlook may change due to the development of alternative technologies, increased recycling, etc. Therefore, investors should adjust their investment proportions according to their risk tolerance and adhere to the principles of diversified investment. In particular, there is a need to monitor macroeconomic factors that affect precious metal prices such as interest rates, inflation, dollar value, and geopolitical risks, and adjust investment strategies accordingly. Investment in silver should be approached from a long-term perspective, but risk management strategies should also be established to prepare for short-term price volatility.

• The historical imbalance in the gold-silver ratio provides important implications for investors. The current situation suggests that silver is undervalued compared to gold, making it worth increasing interest in silver in terms of portfolio diversification and potential return opportunities. However, as all investments carry risks, a cautious approach is necessary, comprehensively considering asset allocation, investment methods, timing, and risk management.

4️⃣ In Conclusion

While gold prices have reached an all-time high, surpassing $3,500 per troy ounce, silver prices remain at around $35, resulting in a gold-silver ratio exceeding 100:1, a state of historical imbalance. This figure deviates significantly from the historical average of 16:1 to 30:1, and many experts analyze that silver is severely undervalued.

The causes of this imbalance are complex. Gold demand is primarily formed by investment and jewelry purposes, making it sensitive to economic uncertainty and inflation concerns, while silver, with industrial demand accounting for 60%, is more affected by economic cycles. Recently, as demand for safe-haven assets has surged due to global economic uncertainty and geopolitical tensions, gold prices have soared, but industrial demand for silver has been relatively sluggish due to concerns about economic recession.

However, from a medium to long-term perspective, the outlook for silver is positive. While demand for silver is steadily increasing in new technology industries such as solar panels, electric vehicles, and 5G communications, production is likely to stagnate or decrease, leading to an expected supply shortage. Additionally, historically, after the gold-silver ratio became extremely high, silver prices typically rose, showing a pattern of ratio normalization.

For investors, the current situation suggests that this is a notable time to focus on silver in terms of portfolio diversification and potential return opportunities. However, as silver price volatility is high and various risk factors exist, a cautious approach is necessary according to one's investment goals and risk tolerance.

Ultimately, the historical imbalance between gold and silver is likely to be resolved through the market's natural adjustment process. Right now, only gold is receiving attention, but it is expected that silver prices will rise due to increased industrial demand and supply constraints in the future, causing the gold-silver ratio to return to a more normal level.