Silver is Poised to Outperform Gold
The theme in the capital markets today, is to own riskier assets, as stock price rise to record highs, and volatility is subdued. Share prices appear to be reaching new historic all-time highs nearly every day. This phenomenon is on a global scale, as Japan, has hit 20-year highs and might be ready to test levels not seen since the 80s. When sentiment reaches unsustainably high levels and complacency settles in for the long hall, the smart investor’s looks to diversify their portfolio by adding precious metals, such as silver bars and gold coins.
If you are looking to reallocate some of your portfolio and want to make sure that you purchase a metal that has an interesting value proposition, you should look to concentrate on purchasing silver bars or coins. Silver prices generally move in tandem with other precious metals, but since silver is used for some industrial purposes, the best to time buy silver bullion products is when global growth is poised to climb.
Economic Growth Helps Buoy Silver Prices
The market is set up to provide an investing environment where silver prices outperform gold. Growth is on the horizon, especially if deregulation takes hold, and corporate tax cuts are implemented. Corporate tax reform, which is being championed by the Republican Congress and President Trump, would make the United States more competitive relative to Europe and Asia, and could boost GDP above the 3% threshold. Deregulation in the banking sector, will allow borrowing to expanding, which would incrementally increase U.S. growth.
Historically, periods of solid growth, lead to an increase in the price of Silver relative to the spot price of gold. There are always exceptions to these moves during extended economic cycles, as stress periods can change the dynamic, such as the Gulf wars, the U.S. financial crisis, 9-11 and the European debt crisis. During times of severe economic turmoil, investors look to safe haven products, and generally gold bar prices are on the top of the list.
A Chart of Silver versus Gold
The chart above shows the prices of spot gold relative to the price of spot silver. The bar chart is a ratio of gold divided by silver. When gold rises relative to silver, the ratio increases. When silver rises relative to gold, the ratio declines. In 2011, when the U.S. was rebounding from the financial crisis, silver prices reached their 30-year peak relative to gold near 29. During the 1991-1992 recession following the first Gulf war, the price of gold reached a 30-year peak relative to silver at 99.
Silver Outperforms Gold in Periods of Expansion
During periods of economic contraction (examples are depicted by the red arrows in the chart of monthly gold prices versus monthly silver prices) the relative value of gold increases versus silver. When economic growth expands, which is depicted by the green arrows in the chart, silver generally outperforms gold.
Currently the price of gold is 75-times greater than the price of silver, which in the upper region of the 30-year range. The 10-year average of the ratio between gold and silver is at 63.4-times, and the all-time low is at 29-times. If you are looking to add some precious metals to your portfolio, this chart tells you that silver is undervalued relative to gold, and a move back to the 10-year average would reflect an 18% increase in the price of silver relative to the price of gold.
Good Investing,
Treasure Coast Bullion Group
Read more by Treasure Coast Bullion Group, Inc - Staff Writer
