Gold-to-silver ratio breaks through key levels, is the silver bull market just beginning?
The gold-silver ratio has broken through a thirteen-year support level, but is still far above historical averages, indicating that silver is still significantly undervalued compared to gold. With the current upward trend in gold prices and tight fundamentals, silver may be entering a new bull market
As the gold-silver ratio falls below a key support level, silver may be entering a new bull market.
The gold-silver ratio, which measures the number of ounces of silver needed to purchase one ounce of gold, has historically ranged from 40:1 to 60:1.
Two months ago, the gold-silver ratio fell from its year-high of 87:1 to 73:1, breaking a thirteen-year support level. Despite some subsequent recovery, it has not been sustained and currently remains around 76:1, still significantly higher than the historical average, indicating that silver is still heavily undervalued relative to gold.
Analysis suggests that this change, combined with the current upward trend in gold prices, is sending a clear positive signal in the silver market.
Based on historical experience, the gold-silver ratio often quickly reverts to the mean after reaching extreme highs.
In 2020, due to the impact of the COVID-19 pandemic, the gold-silver ratio soared to a historical high of 123:1, then fell to around 60:1 under the loose monetary policies of global central banks. Similarly, after the 2008 financial crisis, the gold-silver ratio dropped from over 80:1 to 30:1.
It is worth noting that silver often performs well in a gold bull market.
For example, during the pandemic, while gold rose by about 40%, silver surged by as much as 141%. Since the beginning of this year, physical gold has risen by less than 20%, while physical silver has skyrocketed by nearly 30%.
Furthermore, the fundamentals also support the optimistic outlook for the silver market.
Currently, silver demand is expected to reach a record 1.2 billion ounces, while supply has not shown significant growth. This supply-demand imbalance, coupled with the growing demand for silver in the solar energy market, suggests that the silver market may face structural shortages.
According to a recent research paper published by scientists at the University of New South Wales, by 2027, solar panel manufacturers' demand for silver may account for over 20% of the current annual supply. By 2050, solar panel production could consume 85-98% of the current global silver reserves. This growth in demand will undoubtedly bring new vitality to the silver market