Price of silver in comparison to gold is at a 26-year low: A buy?

Experts say silver may give healthy returns in the near term

The price of silver in comparison to gold is at a 26-year low. This comparison is derived by calculating the ratio of the price of gold to silver. The ratio is the amount of silver that can be bought with one ounce of gold. Currently, the ratio is at 90, the highest point since March 1993. A higher ratio indicates silver is much cheaper than gold.

If silver is so cheap in relative terms, should investors look at buying?

Near-term prospects are bright

Experts and analysts say in the near term, silver may give healthy returns, and that the gold-to-silver ratio may fall to 80 after silver starts outperforming gold.

Philip Newman, director of Metals Focus, said, “Despite the persistent challenges that silver has faced, we remain cautiously positive about the price outlook for the rest of 2019.”

The consultancy believes that the lacklustre macro-economic backdrop will favour renewed investment into gold, which in turn should also benefit silver. The reason for the cautious approach is that even as gold may find safe-haven buying, a half of silver’s demand is coming from industry and that segment is subdued following the re-emergence of a trade war.

Metal Focus, in its just-launched Silver Focus 2019 report, said: “Year-end, we think prices will struggle to surpass $18, a level not seen since the third quarter of 2017. On annual average bases, we see prices averaging $15.60.”

In 2019, silver price have averaged $15.23. In other words, standalone silver could give 20 per cent return in 2019.

Naveen Mathur, head of commodities and currencies at Anand Rathi Commodities, said: “Silver’s fundamental as precious metal is turning good though for some more time investors have to live with the high ratio of above 80. Base metals are looking subdued impacting silver demand to that extent.” He doesn’t see big returns from silver in the near future.

Largest silver investor in the world

The market size of India’s silver investment in 2018 was 1,680 tonnes, making it the largest silver investor in the world.

So far, India’s biggest consumer segments have been jewellery and silverware. Although both have marked a positive growth and contributed to keep overall global demand positive, silver demand grew 30 per cent in India.

According to the Metal Focus’ Silver Focus 2019 report, “2018 saw strong demand for 1kg and 5kg bars, compared to 15kg and 30kg bars in 2017, which suggests that small retail investors have returned to the market.”

Silver demand for investment in India is price-sensitive and traditional investors also keep a portion of investment for trading or buying low and selling high.

Debajit Saha, senior analyst for India and the UAE with GFMS TR, another global research firm, said “India’s import in the March quarter was 1,310 tonnes which is higher by 9 per cent, but in February (when) silver price increased to ~40, 000 per kilo, investors offloaded 180 tonnes of silver (bought at a little lower price, and booked trading profit) resulting in higher domestic supply.”

He is optimistic about the demand of silver increasing in the June quarter.