For centuries, silver has been referred to as "the gold of the poor." Looking at the difference between gold and silver prices, it’s easy to understand why. At the time of writing, gold is priced around $1,900 per troy ounce, while silver stands at $24 per troy ounce. Although both metals have historically performed well, one troy ounce of gold costs nearly 80 times more than one troy ounce of silver.
Silver is sold globally as both an investment and a material for manufacturing. Yet, it remains significantly cheaper than gold, platinum, or palladium. There are many reasons for this, but one thing is certain: it has nothing to do with visual appeal. In fact, to an untrained eye, it would be nearly impossible to distinguish between silver, platinum, and palladium, as all these precious metals have a silvery appearance.

The History of Silver Prices

Since the early days of organized society, silver has been used as a medium of exchange and eventually as coinage, primarily for funding armies and paying taxes. Around 3100 BC, the Code of Menes established that one part of gold was equal in value to two and a half parts of silver. This is the lowest recorded gold-to-silver ratio in history.
Thousands of years later, the Roman Empire set the ratio at 12:1. In subsequent centuries, various European countries adopted similar gold-to-silver conversion rates. Across the Atlantic, the newly independent United States established the Coinage Act of 1792, which introduced bimetallism, gold and silver standards, and a fixed ratio of 15:1.
Various factors contributed to fluctuations in silver prices during the 19th and 20th centuries. Central banks, for instance, made desperate attempts to regulate the prices of silver and gold, the two base metals underpinning the economies of many nations at the time.
One of the first global factors to significantly impact the silver market was the Franco-Prussian War of 1870–1871. Prussia's victory resulted in France paying 5 billion gold francs as war reparations. This sudden influx of gold forced Prussia to transition from the silver-based Thaler to the gold-backed Mark. In the following years, many governments with silver-based currencies ceased silver production in their mints.

Why Is Silver Relatively Cheap?

First, it’s important to understand that silver has always lived in the shadow of gold. Gold is seen as a safer investment and a more recognizable symbol of wealth. Historically, gold has been considered the rarer and more valuable precious metal. For centuries, the price gap between gold and silver remained relatively stable. It was only after the American Civil War, with the demonetization of silver, that price manipulation through the price discovery process began. This led to fluctuations in silver prices over the past 150 years.
Every time gold prices spiked during periods of financial instability or debt crises, the gold-to-silver ratio experienced further volatility.
Society’s perception of silver’s value also affects its price. Compared to other precious metals, the first thing that comes to mind about silver is its significantly lower cost. For the same investment, you can buy much more silver than gold. Silver struggles to break through because people expect silver products to be much cheaper.

The Demand for Silver

After the disappearance of silver-based currencies worldwide, physical silver remained a raw material and investment vehicle, much like other precious metals. Today, there is significant demand for silver in industrial applications, particularly with the rise of modern technologies.
Silver is a highly conductive precious metal and can improve the energy efficiency of electrical applications. Examples include its use in solar panels, superconductors, and printed circuit boards. Silver can be found on construction sites, in industrial buildings, cars, water filters, and even in the computer or mobile phone you are using to read this article. High levels of industrial production positively impact the price of silver (supply and demand).
Silver is also an essential metal in the jewelry industry due to its malleability and resistance to oxidation. Its rarity and brilliant white color have ensured the enduring popularity of silver jewelry.
Since the introduction of a fully fiat-based system in the United States in 1971, investors have turned to precious metals as a hedge against inflation, speculating through the price discovery process. This led to the establishment of private refineries worldwide, producing pure physical silver to meet investment demand. Governments also saw the profit potential of their silver reserves and began producing silver coins.

Inflation

If you consult an expert for investment advice in today's market, it wouldn’t be surprising if they recommend adding silver to your investment portfolio. Precious metal investors often turn to metals like silver when the market is experiencing low interest rates. On the other hand, it may be possible to benefit from silver before market trends shift toward higher interest rates.
For this reason, inflation can play a key role in determining the price of precious metals. If the US dollar underperforms, we may see a rise in precious metal prices. The same applies in reverse. Many experts suggest using silver as a hedge against the risks associated with inflation and the devaluation of fiat currencies.

Governments and Silver

Many countries around the world hold gold as financial reserves. In the past, silver was also stored, but this changed with the end of the silver standard. Today, very few countries maintain significant silver reserves. For instance, the United States sold most of its silver reserves after the Coinage Act of 1965, which removed silver from circulating coinage.
However, the United States still purchases a significant amount of silver each year for the production of silver investment coins, such as the American Silver Eagle, minted by the US Mint. The acquisition of silver and the production of US Mint coins can influence the price of silver, according to the basic principles of supply and demand.

The Importance of the Gold-Silver Ratio for Investors

The gold-silver ratio indicates how many troy ounces of silver are needed to purchase one troy ounce of gold. In other words, it shows how much more expensive gold is compared to silver. Modern precious metal investors and traders use the fluctuating gold-silver ratio to determine which metal might outperform the other. Depending on the ratio, investors may lean toward buying silver instead of gold, or vice versa. This can lead to fluctuations in demand for both metals, ultimately affecting their prices.

Conclusion

No one can predict what the future holds for silver prices. While it is possible to analyze the gold-silver ratio, stock markets, and interest rates over the long term, outcomes may differ from expectations. What is clear is that current demand for silver is insufficient to stretch the existing supply and bring silver prices to the same level as other metals. Unless there is a significant surge in demand, silver will likely remain a relatively inexpensive precious metal.
Disclaimer: The Silver Mountain does not provide investment advice, and this article should not be interpreted as such. Past performance is not indicative of future results.