I had given a call to invest in Gold & Silver on 23rd August 2024 when Gold price was approx. $2500/oz and Silver was at 29/oz. Since then, both Gold and Silver have scaled higher; Gold having touched a new historic high of $3500/oz and Silver briefly breaching $35/oz before retracing back to their current levels of $3312/oz in Gold and $32.92/oz in Silver as on 30th April 2025.
Let me reproduce what I had mentioned in my note of 23rd August 2024 and made a case for investing in both Gold & Silver. Title of that note (aptly so) was TIME TO LOOK BEYOND EQUITIES. Indian Equity market peaked out by end September and thereafter on a downward spiral.
Case for Investing in Gold:
- Traditionally, a weaker U.S. dollar and lower U.S. interest rates increase the appeal of non-yielding bullion
- Weak US economic data and probability of recession is also positive for precious metals (Gold & Silver) as an asset class. Economic and geopolitical uncertainty tend to be positive drivers for gold, due to its safe-haven status and ability to remain a reliable store of value
- Many of the structural bullish drivers of a real asset like gold — including U.S. fiscal deficit concerns, central bank reserve diversification into gold is well in place
- Many Central Banks have started buying Gold over past few years and lightening Dollar Assets post sanctions on Russia after Ukraine war and freezing of their assets
- Fed likely to cut interest rates in September policy, a catalyst for precious metals to rally
- S&P 500 to Gold ratio indicates early stages of Gold rally
- This ratio indicates how many units of S&P 500 units can one buy for once ounce of Gold
- Higher the ratio indicates equity markets are expensive and likely to correct; whereas a declining SPX/Gold ratio typically signals a stronger gold market relative to equities, often marking bottoms in gold prices as investors shift to safer assets amidst economic fears
Case for Investing in Silver:
- Typically, silver is considered more of an industrial metal rather than a precious metal like Gold
- There has been surge in industrial demand for silver over past 3 years
- Current industrial demand might consume entire silver market by 2025
- Electronics, Arms & ammunition, AI, EVs, Solar energy are some of the industries which consume silver
- Generally, for every one ounce of Gold produced, there are 16 ounces of silver produced. Currently mining ratio is 7:1 but Gold to Silver price ratio is 87:1
- The gold-to-silver ratio is an important measure of the relative gold and silver prices. It compares the amount of silver required to buy one ounce of gold
- The ratio can be used to help determine whether to focus on buying physical gold or silver. For example, a popular rule of thumb is the "80/50" rule, which suggests switching to silver when its value rises above 80 ounces of silver per 1 ounce of gold, and switching to gold when its value drops below 50 ounces per 1 ounce
- As the saying goes, GOLD IS FOR KINGS – SILVER IS FOR GENTLEMEN. There are more gentlemen than kings in the market – currently no investment demand premium is built in silver prices
- However, during negative economic news, silver tends to become volatile and underperforms for some time like 2020 COVID time when Gold to Silver Ratio went up to as high as 125:1
- Post market corrections during depression/recession, precious metals perform the best and during such periods silver outperforms gold as well
- Also, there are mining challenges – depleting outputs from existing mines, very few new discoveries to replenish depleting inventories. Cost of producing silver is upwards of $25 – modestly profitable for miners – one more reason why they refrain from spending more on discoveries
- Only at silver prices north of $30/oz industry is profitable to encourage existing production
- At $40/oz new projects can be developed
- At $50 and above real exploration for new discoveries can start
Practically, all the reasons mentioned above have panned out in some form or the other:
- Dollar Index was 101 in August 2024. It touched a high of 110 post Trump winning elections. Thereafter, due to Trump Tariff impact and Trade War it has gone below 100 and now at 99.28 on 30-04-2025
- Weakening dollar has a huge positive impact on Gold prices
- Fed cut interest rates in the month of September 2024 before pausing. Lower interest rates also have a positive impact on precious metal prices
- Geo political concerns, Tariff uncertainties (impacting global growth), likely US recession and worsening The US Government Debt and fiscal deficit concerns are also positive for precious metals
- Also, very high equity market valuations (which reflected in S&P to Gold ratio) also contributed to rotation of asset class performances (US equities are on a correction mode v/s Gold on an upward trajectory). This ratio was at its peak in February 2025 at 2.10 to currently at 1.67. I had mentioned that higher ratio indicates that Equity markets should correct and lowering ratio (like at present) indicates a rally in Gold prices
What is the way forward and is the Gold and Silver rally over?
- Uncertainty caused by Trump Tariffs and subsequent flip flop on policy announcements have created huge confusion in world economies
- There will be huge disruptions in supply chain issues going forward, which is reflected in shipping and logistics slump: Donald Trump’s increasingly erratic trade war has triggered a slump in shipments to the US’s most important ports, amid the growing risk of a recession in the world’s largest economy. In the latest sign of the US president’s tariff policies rattling the economy, figures show the number of vessels scheduled to arrive at the Port of Los Angeles next week is down by almost a third on the same period a year earlier
- Gold has outperformed U.S. stocks so far this year, with the three-month rate spread between the two asset classes marking their most significant gap in over two years, according to Dean Christians, senior research analyst at SentimenTrader, in a recent note
- Gold has not outperformed stocks by this much since 2022. Here is what that means for investors: "Traders are seeking hedges against perceived economic and geopolitical risks, elevated U.S. and foreign policy uncertainty has prompted weaker consumer sentiment, could challenge business investment, and supported higher inflation survey readings." U.S. data from the Conference Board Tuesday showed that the survey of consumer confidence fell to a more than four-year low of 92.9 this month, from 100.1 in February – says Aakash Doshi at State Street Global Advisors
- Based on all the above and cues from softening crude prices, rising 10 Year UST are all pointing towards an imminent global slowdown (if not out right recession) in coming quarters
- Whenever, US has gone into recession and thereafter markets have corrected, history shows that it has a ripple effect on all asset classes including equities, cryptos, real estate and precious metals. All fall together during such time
- However, Gold and Silver take off after initial drawdowns and goes into a different orbit altogether as has happened in past corrections and bounce backs thereafter:
- Hence, based on past trends and data analysis, there is all likelihood of gold and silver price correcting in line with US equity market corrections and then bouncing back to form new highs
- There can be a retracement of 15 to 30% from current levels, which becomes BUY ON DIP opportunities in precious metals
Now let us look at Gold v/s Silver going forward:
- Gold to Silver ratio indicates relative over valuation of Gold to Silver or relative under valuation of Silver to Gold
- The ratio can be used to help determine whether to focus on buying physical gold or silver. For example, a popular rule of thumb is the "80/50" rule, which suggests switching to silver when its value rises above 80 ounces of silver per 1 ounce of gold, and switching to gold when its value drops below 50 ounces per 1 ounce. 30 Year Average of Gold to Silver is at 68
- Currently it is above 100; indicating Silver is undervalued compared to Gold and has a massive upside potential
- This can be attributed to institutional investors and Central Governments stacking Gold since 2022 – post freezing of Russian assets, de-dollarization drive, trying to make Gold their reserve or an alternate currency , slowing global economy and uncertainty due to trade tariffs and geo political issues
- When Gold starts to become more and more expensive and investors who have missed participating in this rally, wake up late and start to buy more affordable Silver – which is rightly called the Gentleman’s Gold. Silver prices are manipulated and suppressed due to its huge mis match of demand and supply as an industrial metal
- First phase of Gold rally is over when Gold to Silver ratio reverses and goes below 75:1; however it is currently going in the reverse direction of scaling new highs
- This can go as high as 150 to 170 if the Central banks continue their gold accumulation drives and Gold goes into a blow off moment. This is not the time to go against the tide. Continue to add/hold Gold but steadily accumulate silver as well at different price points
- Gold to Silver ratio spiked to 113 during COVID in March 2020. After this Silver posted a 70% plus gains over next one year v/s 8% gains in Gold over the same time
- Something similar happened during Global Financial Crisis (GFC) of 2008: when ratio jumped from 53 to 80 in 5 months – followed by 80% rally in Silver, significantly outpacing Gold rally of 44%
- These historical precedents reinforce the view that Silver tends to deliver its best gains after extreme Gold strengthening periods
- However, as mentioned earlier, when equity markets correct, even precious metals will correct by 15 to 30%, during such times. Silver tends to be more volatile as narrative changes to slow down, recessions, lower demand for silver etc.
- Add to this the suppressed and managed lower silver prices by the banking cartel will not allow silver prices to sky rocket any time soon. Only post the correction is over, and dust settles can Silver sky rocket and outpace gold rally
- Big money chases Gold and retail money chases silver. That will be visible when Gold to Silver ratio starts to climb down to 75:1 and below and when 1st Phase of Gold rally is done
- At 75:1 Gold to Silver, one can then shift to become aggressive in Silver and lighten some positions in Gold
Bottom line is, both the precious metals are in a structural Bull run. They will have some bumps going forward when equity markets correct post global slowdown/recession. However, they can scale newer highs thereafter.