The bullish factors behind silver’s rise


by Alasdair Macleod, GoldMoney:

In recent weeks, silver’s price has been remarkably strong, threatening to break out above the levels established in August 2020. The long-term chart certainly looks positive.

Could we be witnessing a major turning point for silver?

This increasing possibility is tied up in evidence that fiat currencies are descending into debt-driven chaos, and that the future will favour currencies linked to gold. All my research confirms that gold is the monetary proxy for commodities and energy. But throughout most of post-mediaeval history, silver had a similar role when the gold/silver ratio was between fourteen and sixteen times. That relationship ended in the early 1870s, following the Franco-Prussian war when gold reparations from France allowed the German victors to migrate from a silver to a gold standard.


Silver lost most of its value as exchangeable money from that time, moving its price lower towards demand for other less valuable exchange priorities, though it remained in coinage and as legal tender for up to forty shillings in Britain. Compare the pre-1870 gold/silver ratio with that of today (currently in the mid-eighties) and all moneyness in silver has evaporated. If anything, silver demand is linked to that of base metals rather than gold.

To establish this point, the chart below compares silver priced in gold since 1971, compared with a base metal index, courtesy of the IMF, taking year-end values indexed to 1991 (when the IMF series started).

A graph of different types of metal

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While silver outperformed this basket by 26% over the last 32 years, its correlation clearly shows that silver is being priced as a commodity and not a gold substitute.  It is true that priced in gold commodities are considerably less volatile than priced in fiat currencies, demonstrating a similar correlation. But it is the value level to which silver has descended relative to gold since the 1870s, which is the difference. It is a trend which has continued over the last decade, as the chart of the gold/silver ratio shows.

A graph showing the growth of silver

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First the abandonment of the silver standard, then of the gold standard in 1971 have not been kind to silver. Silver’s long-term underperformance continued, but as the pecked line in the chart above, the value destruction is losing its underlying momentum, having peaked in March 2020.

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