Silver Price: A Bargain in the Waiting?

October 12, 2017

Anywhere investors look, opportunity seems low. Stocks are high, which means you really have to lean forward in your research to find bargains. But there are those reluctant to bring money out of the stock market while it continues to surge to new records, for fears that they’ll lose out on these easy gains.

That leaves precious metals like silver. Is silver another investment that’s overinflated, or is it a bargain in the waiting that’s been overlooked?

The Gold-Silver Ratio—And Where Silver Is Now

If gold trades at $1,000 and silver at $10, we say that the Gold-Silver ratio is 100 to 1, which would be high. Traditionally, the ratio has averaged anywhere from 50 to 100—especially in recent days. For that reason, silver investors often look at this ratio to figure out if silver is underpriced or not. For example, if gold is trading at $1,000 and silver is at only $5, it would suggest that silver is highly undervalued and due for a correction upwards.

That leads to an obvious question: where does the ratio stand as of today? Although there’s a little fluctuation depending on what the metals will do this morning and afternoon, the ratio is nearing the 75 mark. That means the price of an ounce of gold will cost you approximately 75 times the cost of an ounce of silver.

Interpreting the Current Ratio

Although that’s right smack in the middle of the 50-100 range, it’s worth noting that the gold-silver ratio going back historically has been much lower. In antiquity, silver’s price was as much as a twelfth the price of gold. The ratio isn’t so drastically high as to expect massive fluctuations immediately in silver’s future, but it’s worth noting that if precious metals go up, there will be plenty of room in the ratio for silver to make gains against even gold.

Movement in the London Metal Exchange

If there is room for bargain hunting in the precious metals market, the London Metal Exchange is expanding its opportunities to identify it. That suggests that there is some growing interested in watching both precious metals—including silver.

With the LME looking to expand trade around these references prices, perhaps it’s an indication that investors see more to these potential in these markets than can just be found in equities.

Finding a Reference Point for Silver

It’s hard to point to any particular price of silver and say that the precious metal is undervalued. As is always the case, silver’s price will largely depend on what the U.S. dollar does. And the U.S. dollar has shown a little bit of weakness after making a bull run over the past few weeks, which has left room for precious metals like silver to make a move.

That doesn’t mean silver is guaranteed to move up. But if there is a market correction on the way, some investors might feel safer in silver than they do some of the overpriced equities that are currently on the market.  

Silver has 47 protons and 61 neutrons