Silver: a better bet than gold?

Silver has hovered around the $7/oz mark for the last six months. But could silver be undervalued compared to gold? According to independent silver analyst Ted Butler, there's a lot more that investors should know about the metal.

Silver has hovered around the $7 an ounce mark for the past six months. But the uptrend of the past two years looks far from over. Demand has exceeded mined supply for the past 16 years. Since the late 1990s, the gap has been plugged by stockpiles held by the Chinese central bank, which are now widely thought to be close to depletion. Boosting supplies rapidly won't be easy, as there are few primary silver mines in existence silver is largely a by-product of base-metal mining.

A slide in demand for silver, owing to the advent of digital photography, should be offset by the need for silver in other industrial applications as China and India improve their standard of living. Silver is used in fields from medicine to computer technology, and a rising price shouldn't choke off demand, as the metal rarely comprises a large proportion of the end product's cost.

Another reason to like silver is that it looks undervalued compared to gold. As Handelsblatt points out, gold now buys 63 ounces of silver; during the last precious-metals boom in the early 1980s, when both metals were peaking, it bought 17. So silver has some catching up to do.

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That's putting it mildly, says independent silver analyst Ted Butler. Consider that silver is actually rarer than gold there is less of it above ground, and because silver is used as an industrial commodity, it is barely recoverable, unlike gold.

So silver is likely to become even rarer as stockpiles deplete. Yet it seems that nobody knows this: gold is currently priced as if it were the rarer metal. "That should get your juices flowing".

If you are new to investing in silver, see our guides to investing in silver and silver ETFs. Or go to our section in investing in gold, silver and precious metals for a full list of articles.

Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.