Image Source: Pixabay

Silver has long been considered "the poor man's gold" or "gold's little brother," as it was historically still utilized as money, but it was often deemed less valuable than gold. According to Wikipedia, silver was far more common than gold as the monetary standard from 3000 BC until the late 19th century.

The United States mandated a silver standard with the Mint and Coinage Act of 1792 and a value of silver of roughly 15 times that of gold. However, the silver standard officially ended under the Coinage Act in 1873, in which silver was demonetized.

Since the demonetization of silver, the gold/silver ratio has ranged from 15 to over 100. It fell to as low as 15 at the end of historic peaks in the gold price and inflation (the low before 1970 was due to the gold peg during the start of that inflationary period).

Although silver is consumed like a commodity or base metal, its driving forces are most similar to gold. In terms of demand, that means investment demand. Because investment demand is the major demand driver of the silver price, it should not be a surprise that silver is historically more tethered to gold than copper.

Figure 4.4 in the video plots the historical performance of gold, silver, and copper. Historically, silver has acted like a highly leveraged play on gold. It greatly outperformed gold during the two secular bull markets (shown in yellow) and underperformed badly during the two secular bear markets (1980 to 2001 and 2011 to 2022). The biggest moves in silver occurred after the most important breakouts in gold.

Most notably, gold broke out first in 1978, 2003, and 2019, and it is about to do so again. Gold usually leads inflation, but gold also leads silver. The three most significant breakouts in gold and the ensuing advances in silver occurred amid rising inflation. Here is how to think of the relationship between gold, silver, and inflation, as well as how silver might perform.

Silver will outperform if gold breaks out to the upside and inflation rises. If gold breaks out to the upside but in a deflationary and recessionary environment, then gold will outperform silver.

00:07:32

Timestamps

• 0:00 - Intro
• 0:05 - Silver's history as money
• 0:45 - The gold/silver ratio
• 1:45 - Silver's supply & demand
• 3:19 - Performance with gold & copper
• 5:13 - Best silver moves, CPI
• 6:40 - Summary

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