The silver price has been significantly underperforming the gold price in recent years, with the ratio (gold:silver) between the two metals in a rising trajectory from 2011, when silver hit record high levels, until just recently.

The ratio has been at extremely elevated levels in recent years, highlighting silver’s low valuation relative to gold for an extended period of time. In March 2020 the ratio hit a record high.

The ratio has corrected from those record high levels but is still at elevated levels, suggesting more potential upside for silver prices relative to gold.

It should be understood that there is no magical number at which this ratio should stand. There are no physical, geologic, chemical, electrical, financial, or other reason why gold and silver should be expected to trade at a given relationship to each other.

The strongest influence on the price of silver is investor interest in the metal. And while investors will look at the relative value of the two metals as one of the factors that influences their decision to buy or sell silver, their interest in the metal is driven by macroeconomic factors as well as supply demand factors. If these fundamental factors do no favor silver, they are unlikely to purchase silver only because it is a relatively undervalued asset. That said, if silver is undervalued relative to gold and the fundamentals line up, the upward move in silver could be quite explosive. That is where we seem to be at this time.

While many investors look for the gold:silver ratio to converge toward its long-term average, in reality the ratio swings significantly away from this average. The long-term daily gold:silver average ratio stands at 65, however the ratio has swung from a low of 16 in January 1980 to a high of 126 in March 2020. It should be pointed out that the ratio stood at the 65:1 average only very briefly around 7 times since 1972. It is not that the price ratio hovers around that average.

It stands at around 71 at the time of writing this report, putting it around 8.5% away from the average. However, given the tendency of the ratio to overshoot this average both on the way up and on the way down, there seems to be a lot of juice left in the silver price rally based on just this one metric. Just looking at the chart, suggests that the ratio could slip to at least a low of 35 before stabilizing or moving higher. This positions the ratio for a gain of another 50% from present levels (the price of silver could rise more or less than this 50% depending on what happens to the price of gold).

In addition to the bullish picture that the ratio paints for silver prices, the metal also has the support of investors driven by the relatively grim outlook for macroeconomic conditions in coming years.