Since ancient times, silver has been sold as a valued metal. It is widely utilized throughout many different industries, such as jewellery, electronics, and photography, and is also seen as a store of value and an inflation hedge.
Identical to gold, silver is also regarded as a store of value and to protect their capital from inflation and economic downturns, many investors invest in silver. For this purpose, silver is frequently regarded as a more cost-effective option than gold, making it available to a wider variety of investors.
These merits and uses make silver one of the most traded entities in the global markets.
Correlation between silver and gold prices
The price of silver and gold are typically closely associated as a result of the frequent use of the two metals as a hedge against one another. Due to this correlation, the gold-silver ratio becomes extremely important because of its usage as a handy tool for investors for knowing which metal is overvalued or undervalued.
As per this correlation, a low ratio indicates that silver is undervalued relative to gold and thus presents a favourable time to buy silver. On the other hand, a high ratio can indicate that gold is overvalued relative to silver and represent a favourable time to buy gold.
Gold-silver ratio: a look throughout the history
It’s crucial to remember that the gold-to-silver ratio is dynamic and subject to alter throughout time. The ratio can be impacted by several variables, including supply and demand, inflation, and economic conditions.
The gold-to-silver ratio has varied throughout history between 15:1 to 100:1. The ratio reached as low as 15:1 in the past, indicating that silver was vastly undervalued in comparison to gold. The ratio, however, has also reached as high as 100:1, which indicates that gold was inflated relative to silver at that particular time.
As mentioned above, the ratio has changed over time; at the moment is approximately 81:1. This means that 81 grams of silver are required to buy one gram of gold.
What impacts gold-silver ratio
The relative availability of each metal is one of the key elements that influence the gold-to-silver ratio. Because gold is a relatively rare commodity, mining corporations largely control its supply. Silver, on the other hand, is a more plentiful metal and the demand from industry influences its availability. When silver is in more demand, its price rises and the ratio falls.
Inflation is another element that may have an impact on the gold-silver ratio. Both gold and silver prices can grow as a result of inflation, although the rates of increase may differ for the two metals. The ratio will fall if the price of gold rises more quickly than the price of silver.
Silver, will it really be gold on steroids?
Silver, based on its lower price attracts greater market participants’ interest. Along with this, based on the numerous industrial applications it offers along with its high price volatility, the metaphor “Silver is like gold on steroids” represents the erratic behaviour of silver.
How traders can use the liquidity and volatility of silver contracts?
When trading silver, investors have a few options. They can choose to buy physical silver, such as coins or bars, or they can invest in silver mining companies or ETFs that track the price of silver.
Additionally, silver futures contracts are also traded on commodity exchanges, allowing investors to speculate on the price of silver in the future. The high volatility of the silver contracts is used by market participants who tend to trade heavily in silver.
Silver contracts which are one of the most traded contracts on the Indian commodity market are traded in Indian rupees and are dependent on the price of silver in the global market. Multi Commodity Exchange (MCX) provides future contracts for silver, allowing buyers and sellers to transact at a predetermined price at a later time.
The silver contracts that trade on MCX are Silver (30 kg), Silver Mini (5kg) and Silver Micro (1 kg).
In essence, silver is a precious commodity with many applications across a variety of industries. Many people find it to be an appealing investment option because it is also seen as a store of wealth and a hedge against inflation.
These merits of silver give investors a chance to book profit from the high volatility and liquidity that its contracts enjoy in the Indian commodity market.