Why is Silver So Much More Cheaper than Gold?
At the time of writing, the price of silver is $21.60 per ounce, while the spot price of gold is drastically higher—trading at $1,835 per ounce. In other words, the gold-to-silver ratio is 85.97 which means you can buy about 85 ounces of silver for one ounce of gold.
(source: CME Group)
Why is silver so much cheaper than gold?
Gold is rarer and harder to mine than silver, but that’s not the only reason why these two precious metals differ so much in value.
Here are the main reasons why the gold-silver ratio is so high.
1. Gold is scarcer than silver
The scarcity of the yellow metal is the primary reason why silver is priced lower than gold.
How much gold and silver is there?
According to the World Gold Council, almost 208,874 tons of gold have been mined so far. Conversely, nearly 1.74 million metric tons of silver have been produced. In 2019 alone, 27,000 tons of silver were mined compared to just 3,300 tons of gold.
(source: Silver Bullion)
There is also a huge gap in how much gold and silver remains. The US Geological Survey puts the remaining below-ground stock of gold at 54,000 metric tons, while there are about 560,000 metric tons of silver waiting to be mined.
2. Gold is less volatile
Fluctuations in the gold and silver market are not uncommon, but in general gold is much more stable.
This is mainly because gold serves as a store of value, i.e. its value remains steady rather than going down in time. Actually, gold tends to move inversely to the stock market, so when mainstream assets like stocks go down, trading statistics report that the price of the yellow metal goes up. This makes gold attractive to own during recessions and economic turmoil.
The silver market, on the other hand, is much smaller which makes it more prone to price swings. And since the value is lower, fluctuations in price are more noticeable. Look at it this way: if the price of silver moves by $2.57 per ounce, investors will see a 10% fluctuation in price. However, if the price of gold changes by the same amount, it would represent a price swing of just 0.0013%.
Also, silver is linked more closely to the broader market and thus more affected by the economy in general. Silver is used much more than gold commercially and has applications in medicine, manufacturing, automobile, electronics, and several other industries. This means that when the economy slows down, industries use less silver, causing demand and the price to plummet.
3. Mining and extraction
Gold is harder to mine than silver. In 2022, the gold-to-silver mining ratio was 8:1, meaning that 8 ounces of silver were mined for one ounce of gold. Costs are higher as well—2023 forecasts indicate that the cost of mining an ounce of silver will move between $10.00 and $11.00, whether the same cost for gold is expected to reach $975 to $1,075 per ounce of gold sold.
Another thing: Over 70% of the silver supply is a byproduct of mining for copper, lead, and zinc, which makes this metal cheaper and easier to produce.
4. Unique properties
While both silver and gold are malleable metals, gold is much more durable and easier to maintain.
Silver may not rust in the traditional sense, but it will tarnish over time. Gold, however, is one of the most non-reactive metals which means it doesn’t corrode or worsen in quality, making it more valuable and appealing.
What’s more, gold has a special lustrous quality to it that no other metal can match. This is because gold has heavier atoms than silver which makes electrons move faster and allow some of the light to be absorbed by the metal so the glitter of gold actually comes from within.
5. Monetary asset vs. industrial metal
Investors see gold as a monetary asset rather than an industrial material. Since gold is highly liquid during recessions and economic downturns, many people, including governments, tend to hold stocks of physical gold. In fact, some studies suggest that 98% of gold mined is still hoarded as coins, bars, or jewelry. This makes gold less accessible and therefore more valuable.
Silver, however, is regarded more as a hybrid precious-industrial metal due to its many applications in various industries. Even though the use of silver has declined since the introduction of the digital camera and the widespread adoption of camera-equipped mobile phones, this metal is very much in demand lately thanks to the rise of solar panels, where silver is an essential component. For instance, In 2021, 114 million troy ounces of silver were used to build solar panels.
What’s more, CME Group reports that in 2021 more than 58% of silver was used commercially compared to just 12% of gold.
6. Demand from central banks
Another huge factor that drives up the price of gold is the demand for this precious metal by central banks.
It is estimated that central banks hold more than 34,000 tonnes of this precious metal in official Reserves—the US alone has more than 8,000 metric tons of gold deposits. What’s more, governments continue to buy gold—data from the World Gold Council shows that in Q3 of 2022, global central bank purchases of gold increased by nearly 400 tons, marking the largest growth in demand in the past 22 years.
(source: World Gold Council)
By contrast, almost no countries in the world have substantial silver deposits—for example, the US sold off most of its silver after the metal was removed from circulating coin compositions.
7. Gold has symbolic value
Gold has been a symbol of affluence and power for centuries. Even today, almost all cultures value gold and see it as a sign of personal wealth and prosperity with demand continuing to grow—in 2022, the global demand for gold jewelry was 2,086 tonnes, up by 60 tons from the previous year.
Plus, gold has a unique color that adds luxury and warmth and speaks to humans’ need for comfort and nurture. Naturally, demand for something that is so beautiful and valuable is higher and so is the price.
Finally, society’s expectations also determine the price of both precious metals. Simply put, the price of silver, often called “poor man’s gold”, is low because people expect it to be cheaper than gold.
Investing in Gold vs Silver: Which Is Better?
Both gold and silver are valuable commodities to invest in.
Silver is more affordable, allowing you to buy more for less, but it is also more cumbersome to transport and more expensive to store. It is more volatile than gold as well, thus more suitable for those interested in speculating on short-term price fluctuations.
Gold, however, works much better in times of economic turmoil—it is a good hedge against inflation since it is a countercyclical asset.
To truly diversify your portfolio, it might be best to invest in both gold and silver. Prices may go up and down, but it is not likely that either commodity will ever stop being valuable.
Is the silver price related to the price of gold?
Yes, usually silver follows the price of gold on a daily basis. However, there is a huge gap between the value of the two precious metals. As stated in the starting, the gold-silver ratio is currently at 85, although it has gone as high as 120. Silver tends to outperform gold at times of strong economic growth, while it underperforms gold during periods of inflation and economic downturns.
What makes gold more valuable than other metals?
Gold is durable, non-corrosive, and quite rare (compared to other precious metals). Used as a currency and symbol of wealth and prestige for millennia, this shiny yellow metal is a store of value too, i.e. a means of exchange should paper money or other currencies collapse.
Will silver ever surpass gold in value?
While silver has been known to outperform gold during periods of high inflation and provide gains of 20% a year, gold remains the metal of choice for most investors due to its ability to increase in price during periods of economic stress and increased demand, partly fueled by central banks’ ongoing purchase of this metal.