M6 BARRON’S August 3, 2020
Silver Is Undervalued,
Even With Soaring Prices
I
nvestors have focused on a rise in
record prices for gold, but silver is
up about 25% in July—the metal’s sec-
ond-biggest monthly gain on record—
and it’s still undervalued compared with
the yellow metal.
“Silver is often called the ‘poor man’s
gold’ because some of the same factors that
cause gold prices to rise do the same thing
to silver prices,” says Ed Moy, chief market
strategist at gold retailer Valaurum. “And
what is driving gold prices now are mainly
the fear of inflation due to the magnitude
of the monetary and fiscal stimulus world-
wide, and the flight to safety due to the
uncertainty around how and when the
global economy will recover.”
Silver, however, is “cheaper per ounce”
than gold, and its prices are much more
volatile, he says. It has also been “lagging
behind gold’s rise,” and the ratio of the
number of ounces of silver to buy one
ounce of gold is historically high, implying
that either “gold is overpriced or silver is
underpriced.”
If silver is underpriced, “there is a lot
of money to be made,” says Moy, who was
director of the U.S. Mint from 2006 to
2011.
Silver futures settled at $24.501 an
ounce on July 27, the highest for a most-
active contract since August 2013. As of
July 30, they traded about 25% higher this
month, but stand nowhere near the re-
cord-high $48.599 in April 2011. In com-
parison, gold futures climbed to a record
settlement at $1,953.40 on July 29, up about
9% this month.
“Silver is not even halfway to its all-time
high,” says Ryan Giannotto, director of
research at exchange-traded-fund issuer
GraniteShares. While it’s unlikely that
silver would more than double in the
immediate future, it’s “unwise to rule
out extreme scenarios.”
It takes more than 80 ounces of silver to
buy one ounce of gold. Though the ratio
has seen a significant decline in recent
months, it’s still well above the typical
gold-to-silver ratio, which Moy pegs at one
ounce of gold to 60 ounces of silver.
Ross Norman, CEO of precious-metals
news and information provider Metals
Daily, says the ratio between the metals
rose to a 4,000-year high at 126 on March
18. “It has been clear for some time that
silver was excessively cheap compared
with gold,” he says. The ratio is still histor-
ically high, “suggesting there is scope for
greater gains in silver still.”
He says that gold “often looks to silver
to ‘authenticate’ its rally,” and if the differ-
ential between the two metals becomes too
wide, as it has recently, then gold “stalls.”
For now, gold, at an all-time high, is largely
“untethered from technical resistance
levels.”
For those looking to invest in the silver
market, futures contracts are “good for
experienced speculators who know how
to navigate complicated transactions and
have time to make moment-by-moment
decisions and compete with financial
investment professionals,” says Moy.
For most individual investors, govern-
ment-made silver bullion coins are an at-
tractive way to invest, he says, and govern-
ments guarantee the weight, content, and
purity of each coin. A spokesman for the
U.S. Mint said the bureau has shipped
604,000 more ounces of silver bullion
this year through June, compared with the
same time last year.
Coins, however, may see “steep commis-
sion markups” over the spot price, says
Giannotto. He considers ETFs the “best,
easiest, and lowest-cost way to access pre-
cious metals.” The silver-backediShares
Silver Trust(ticker: SLV) has gained
about 27% in July.
Silver can “trade idiosyncratically and,
at times, violently,” so those entering the
market may want to consider “balancing
out exposure with other historically less-
volatile precious metals such as gold or
platinum,” says Giannotto.B
By Myra P. Saefong
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