The question of whether silver will become the new gold is seized on by silver bugs as a justification for prices returning to the recent peaks around $50. Looking at prices charts the two metals seem to react similarly in times of crisis.
And the answer is a straightforward and wholehearted, no.
While the chemical symbols for gold and silver only differ by a letter, their applications in the modern world, and their supply fundamentals are hugely different.
Historically both metals have been a store of a value, but then again so has copper. While silver continues to function as a store, the shift in the historic gold silver ratio, set by the Roman Empire at 12, and until the end of the 19th century set at 17, is currently around 70. This points to either gold increasing in its relative value or silver declining in relative value.
In reality both are happening at the same time. Gold mining is becoming increasingly costly as ore grades have declined. While silver is not only produced but mostly is a byproduct as ever increasing volume of production of industrial metals rises.
While the cost of production of gold from a dedicated gold mine is high, silver production is essentially free – it’s produced along side copper, lead, zinc and indeed gold.
This fact alone should preclude silver’s ascendancy. One of the key attributes of a store of value is its scarcity and silver isn’t that scarce. Output of gold amounts to around 3,000 tones per annum in 2016, while silver output is 27,800 tonnes.*
Now a silver bugs will argue that silver in addition to its potential as a store of value is also widely used in industrial applications.
Silver will see more industrial applications – in medicine, catalytic convertors and electronics.
And some may argue that gold demand fell in 2016, much of this is due to the Indian government attempting to curb gold imports since 2011 when their Current Account Deficit got out of hand.
Despite China and India’s attempts to curtail gold buying there are significant cultural reasons why silver is never likely to supplant gold.
Evidenced by Bloomberg’s story on India’s and their love affair with gold.
Silver coin sales have gone up recently due to these curbs but cultures around the world viewed silver as store of value. And the adoption of fiat currency, silver has with justification taken a back seat to gold.
And finally, there is estimated to be 570,000 tonnes of silver in reserves and only 57,000 in gold.