Silver’s time in the spotlight isn’t quite over yet, as the metal suffered its biggest drop in years on Friday after crossing a threshold of more than $100 per ounce this year.
In the past year, silver (SI=F) has more than tripled in value, outpacing gold and bringing the gold-to-silver ratio to a new low — that’s the number of ounces of silver it takes to equal the price of one ounce of gold. Gold (GC=F), in comparison, has risen roughly 90% over the past year.
Experts say that tracking the price of gold and the gold-to-silver ratio can offer insight into whether silver is undervalued.
“The gold-silver ratio is 48 compared to a long-term average of around 65 and a low of 30,” said Chris Mancini, associate portfolio manager of the Gabelli Gold Fund. “If the ratio goes down to its low of 30, that would mean that silver would be $170 per ounce, given $5,100 per ounce gold.”
So what was driving the surge over the past year? Analysts say silver’s recent highs can be chalked up to several key macroeconomic factors, including a shift away from dollar-based assets, geopolitical tensions, and overall economic uncertainty.
Read more: What to know before buying gold, silver, or platinum from Costco
“It’s not about silver, it’s about broader economic and political conditions,” said Jeffrey Christian, an expert on precious metals markets and managing partner of CPM Group, in a presentation.
Christian said economists are increasingly concerned about weakening labor conditions, persistent inflation, and the negative impacts of tariffs and trade restrictions, not only in the U.S. but also in the broader global economy.
Investors typically turn to alternative investments such as gold, silver, and other precious metals as a “hedge” against inflation and other economic uncertainty. When markets are volatile, these investments are often touted as “safe haven” assets that can provide stability because they typically don’t react to economic conditions in the same way that stocks and bonds do.
Silver also sets itself apart from other precious metals because of its diverse applications. It’s not only a hedge against macroeconomic tensions, but it’s also a key component of virtually every piece of technology, including solar panels, smartphones, TVs, semiconductors, AI data centers, and more.
This growing industrial demand for silver, however, has also led to a global supply shortage.
Despite its volatility, silver prices are forecast to increase this year “due to the physical supply constraints, robust demand for industrial purposes, and the rising interest of investors owing to economic uncertainty,” said Peter Reagan, financial market strategist of precious metals IRA company Birch Gold Group.
Whether it’s the right time to invest depends on your financial goals and risk tolerance, he said.
“Silver has historically been more volatile than gold,” Reagan said. “Gold is perceived to be stable, and silver has the potential to offer higher returns but with higher risk due to its industrial demand.”
There are several ways you can gain exposure to silver as an investor. This includes investing digitally and in its physical form.
It’s important to note that there is a distinction between physical silver and paper silver — physical metal versus paper silver, which is exposure to silver through shares in a fund, for example. In a volatile market, these two assets can behave differently depending on investor sentiment and whether investors prefer the security of a physical asset in their hands or not.
“Investors can gain exposure to silver through physical bullion (coins and bars), ETFs, or mining stocks. For most investors, ETFs offer the most practical exposure,” said Michael Unger, vice president of investments and planning at Coral Gables Trust.
Deciding whether investing is right for you requires careful consideration of your risk tolerance and investment goals. Investing in silver or other metals can diversify your portfolio and help alleviate some of the uneasiness caused by today’s market volatility. However, silver isn’t entirely risk-free.
“Silver can serve as a useful inflation hedge and diversifier. However, it has tripled in a year, which raises the likelihood of near-term volatility,” said Unger. “Rather than attempting to time the market, investors are better served by incremental allocations within a diversified portfolio.”
Read more: Gold alternatives? How to invest in silver, platinum, and palladium.
