Silver’s time in the spotlight is not over, as the metal suffered its biggest drop in years on Friday after breaking above $100 an ounce this year.
In the past year, silver (SI=F) has more than tripled in value, outpacing gold and bringing the ratio of gold to silver 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), by comparison, is up roughly 90% over the past year.
Experts say that tracking the price of gold and the ratio of gold to silver can offer insight into whether silver is undervalued.
“The gold-silver ratio is 48 compared to a long-term average of about 65 and a low of 30,” said Chris Mancini, associate portfolio manager of the Gabelli Gold Fund. “If the ratio drops to at least 30, that would mean that silver would be $170 per ounce, given $5,100 per ounce of gold.”
So what was driving the increase over the past year? Analysts say silver’s recent highs can be attributed to several key macroeconomic factors, including a shift away from dollar-based assets, geopolitical tensions, and general economic uncertainty.
Read more: What you need 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 in precious metals markets and managing partner of CPM Group, in a presentation.
Christian said that economists are increasingly concerned about the weakening of working conditions, persistent inflation, and the negative impacts of tariffs and trade restrictions, not only in the United States but also in the wider 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 referred to as “safe haven” assets that can provide stability because they typically do not react to economic conditions in the same way that stocks and bonds do.
Silver also distinguishes itself from other precious metals because of its different applications. It is not only a hedge against macroeconomic stresses, but is also a key component of almost every piece of technology, including solar panels, smartphones, televisions, semiconductors, AI data centers, and more.
This growing industrial demand for silver, however, also led to a global supply shortage.
Despite its volatility, silver prices are forecast to rise this year “due to physical supply constraints, robust demand for industrial purposes, and increasing investor interest due to economic uncertainty,” said Peter Reagan, financial market strategist at precious metals company IRA. 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 the digital investment and in its physical form.
It is 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 many investors, ETFs offer the most practical exposure,” said Michael Unger, vice president of investments and planning at Coral Gables Trust.
Deciding whether the investment 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 worry caused by today’s market volatility. However, silver is not entirely without risk.
“Silver can serve as a useful hedge and diversifier of inflation. However, it tripled in a year, which raises the probability of volatility in the near future,” said Unger. “Instead of trying to time the market, investors are better served by incremental allocations within a diversified portfolio.”
Read more: Alternatives to gold? How to invest in silver, platinum, and palladium.