Why is Silver so Cheap?

JP Buntinx
July 23, 2020

Comparing the different precious metals on the market today isn’t straightforward. Silver is priced very differently than gold, palladium, copper, and so forth. But why is silver so cheap, especially when compared to gold?

A Lower Innate Value

No one will be too surprised to learn that every precious metal has its own innate value. How high that value turns out to be, depends on which other commodities it will be compared with. Silver is in a bit of an odd position in this regard, as it has always been put on the backburner to gold. Silver is found in this position only because it has been so popular since day one, thus things could be worse. 

Silver Isn’t That Rare

One often heard comment is how gold is the scarcest precious metal of them all. Silver, unfortunately, doesn’t have the same benefit, as it is far less rare. The difference between the two is much larger than most people would have ever expected. As a result, it creates an imbalance between the supply and demand for silver, which helps in keeping the overall price down.

On the other hand, silver has more industrial use cases than all other precious metals today. That helps give it some more value, and also helps offset the imbalance between supply and demand. More silver to go around means that its price will be cheaper, untilt hat situation reverses all of a sudden. Whether that is even possible, remains to be determined. 

Perceived Value by Society

A lot of products, items, and commodities simply derive value from how they are perceived by society. People have grown accustomed to paying [too much] money for Apple products, thus they will keep doing so for future generations, even if the prices increase. For gold, that situation is similar, as it has always been perceived as the “prestigious precious metal” by traders, speculators, and the wealthy elite.

Silver, on the other hand, is perceived as “the poor man’s gold”. Because it has a much lower price point, one could also argue that it is far more approachable for people looking to make a smaller investment.  Unless the perception of the people changes – either through clever marketing or otherwise – silver will always be considered “second best”. That doesn’t mean it’s not worth keeping in one’s portfolio, however. 

The Gold-Silver Ratio

Thanks to the gold-silver ratio, silver has always been downgraded compared to gold. Since the inception of this ratio, silver has been doomed to play second fiddle. At the time, it was deemed that one would need 2 ounces of silver to obtain the value of 1 ounce of gold. It seemed like a fair system, and the ratio is still being used today.

However, the ratio itself has undergone many changes. By the time of the Roman Empire, the ratio favored gold-to silver at a ratio of 12-to-1. Today, the same ratio puts it at roughly 93-to-1, even though it peaked near 130-to-1 earlier this year. Silver will, by the look of things, have a lower value compared to gold, although their internal ratio is bound to undergo some changes in the future. 

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