Why is Silver So Cheap?

Even though silver and gold are both widely used in jewellery and investment, gold is currently worth nearly 100x more than silver. Why is that?

In this blog post, we explore why silver is cheaper than gold. We’ll look at historical context, supply and demand dynamics, and investor perception, as well as when it’s a better time to invest in silver vs gold.

Key takeaways:

• Silver is cheaper than gold because it’s more abundant and has lower mining costs
• Gold is rarer, harder to mine, and more expensive to refine, all of which add to its market price
• Gold has historically been associated with power, wealth, and prestige, and this image persists even today
• Silver is needed in many industrial applications, especially in electronics, solar energy, and medicine, but these only require small amounts of silver and the demand doesn’t outweigh supply
• Silver can outperform gold during industrial booms, while gold makes a better investment during market downturns or geopolitical crises
• Investors use the gold/silver ratio to compare the prices of these two metals and gauge when silver might be undervalued.

The history of silver prices

Silver has been used as a currency and medium of exchange for thousands of years, where it helped fund armies, pay taxes, and more. One of the earliest mentions of silver prices was in ancient Egypt around 3100 BC, when the Code of Menes stated that the value of silver was two and a half times less than gold. This is the lowest recorded gold/silver ratio to date!

Thousands of years later as silver’s use in European coinage was increasing, the ratio was standardized by the Roman Empire at 12:1. Over the next few centuries, other European countries adopted the same conversion rate. Hundreds of years later, in 1792, the United States Coinage Act formalized a 15:1 gold/silver ratio under a bimetallic standard. This meant that silver was effectively worth 15 times less than gold.

During the 19th and 20th centuries, silver’s value fluctuated several times as central banks attempted to regulate prices. A turning point came with the end of the Franco-Prussian War in 1871, when France was required to pay 5 billion gold francs to Prussia in reparations. With the sudden influx of gold into Prussia, the region shifted away from the silver-backed Thaler currency to a gold-backed Mark.

Other nations eventually followed, phasing out their silver coin production and adopting the gold standard. By the 20th century, silver had largely lost its status as official money.

Read More: What Drives Silver Prices?

Why is silver less expensive than gold?

Silver is cheaper than gold for many reasons: gold is symbolic of wealth, considered to be a safer investment, and is rarer and more valuable than silver. Let’s look at in more detail why silver is cheaper than gold:

Historical context

Throughout human history, gold has been perceived as a symbol of power, purity, and wealth. It was used to honor gods and was the preferred store of value for kings, empires, and central banks (and still is!). Silver, on the other hand, was more accessible and abundant. It was still considered valuable, but it was more commonly used for everyday transactions rather than honoring gods.

These perceptions still hold today. Many of us look at gold as a symbol of prestige and financial stability while silver is the next-best-thing, a more affordable alternative to gold.

Rarity and supply

One of the most fundamental reasons why silver is less expensive than gold is that it’s relatively abundant in comparison. According to the U.S. Geological Survey, more than 1.7 million tonnes of silver have been mined throughout history. Meanwhile, the World Gold Council estimates that we've mined just 216,265 tonnes of gold – that’s nearly ten times less than the amount of silver. On top of that, we think there’s still more untapped silver in the Earth’s crust.

This widespread availability keeps silver’s price significantly lower than gold, which is far rarer. Mind you, if we were to suddenly discover massive new gold ores then gold’s price will likely drop and silver will become the more expensive of the two.

Mining and production costs

The mining and chemical extraction process for gold is also more complex and expensive than that for silver mining. Gold deposits are not only rarer, but also harder to access and often located deeper underground, all factors that lead to more expensive production costs and higher market prices.

This essentially means we can mine more silver in less time than it takes to mine gold. Another point to make here is that silver is often mined as a byproduct of other industrial metals like copper, zinc, or lead. This can sometimes lead to an oversupply in the market, keeping silver’s price down.

See: How is Gold Formed and Where Does it Come From?

Physical and chemical properties

Gold and silver are both malleable metals that are used in coinage and jewellery, but gold has the added bonus of being non-corrosive and non-tarnish. This gives it some extra appeal, particularly when it comes to high-end jewellery and investment-grade products that last for generations. Gold also has a higher density than silver, so a little can go a long way.

Silver, on the other hand, is more reactive than gold. It’s prone to tarnishing and requires more maintenance, two factors that reduce its market value.

Industrial vs investment demand

Silver is actually far more useful than gold when it comes to industrial applications. It’s the best conductor of electricity, making it widely used in electronics, smartphones, solar panels, and medical devices. You’ll even find silver in water purification systems.

So why is silver so cheap when it has such strong industrial demand? Well, most of these applications only consume small quantities of silver and its supply still far outweighs demand.

Gold is also used in electronics, but it doesn’t have anywhere near as much industrial use as silver. It’s more often used for central bank reserves, jewellery, and as a long-term investment in the form of gold bullion, all of which maintain a consistent demand that helps sustain its higher price.

Status

Perception is everything, and silver’s lower price tag can often make it seem like a less prestigious or ‘serious’ investment compared to gold. The simple fact that investors expect silver’s price to be cheap can limit its upward momentum, even when fundamentals suggest stronger demand.

Government reserves

Central banks around the world continue to hold gold in their official reserves, but most have divested from silver. For example, the U.S. sold off most of its silver stockpile after removing it from coinage in 1965. That said, national mints (including the U.S. Mint) still purchase large amounts of silver to manufacture bullion products like the American Silver Eagle or Silver Britannia coins.

Learn More: Why Central Banks Buy Gold

When is silver a better investment than gold?

Silver can outperform gold during periods of industrial expansion or recovery. Because it plays such an important role in manufacturing, silver often benefits when there’s increased demand during economic booms or when industries are rebounding from a downturn. Silver can also increase in price when geopolitical tensions or other events interrupt or constrain supply.

Keep in mind that these factors can play a role in driving physical silver prices but there’s never a guarantee whether silver will go up or down in price. Silver is known for being volatile, so it’s important to do careful research before buying or selling this precious metal.

When is gold a better investment than silver?

Gold tends to outperform silver during periods of global uncertainty, recessions, or geopolitical instability. It’s considered to be a safe-haven asset and acts as a hedge against inflation and currency devaluation, making it popular amongst investors when markets turn bearish.

Similar Reading: What Drives the Price of Gold?

What is the gold/silver ratio?

The gold/silver ratio measures how many troy ounces of silver you need to buy one troy ounce of gold – in other words, how much more expensive gold is compared to silver. For example, if current gold and silver prices were $2,000 per ounce for gold and $25 per ounce for silver, the gold/silver ratio would be 80:1 (25 x 80 = 2,000).

Precious metals investors use the gold/silver ratio to identify potential buying opportunities. When the ratio is high, it suggests silver is undervalued compared to gold. When the ratio is low, it suggests gold is the better value at the time. Depending on where the ratio is, an investor might choose to buy silver instead of gold or vice versa.

Learn more about the gold/silver ratio and how you can incorporate it into your precious metals investment strategy in our article: What is the Gold/Silver Ratio?

You can also view the current gold/silver ratio chart here.

Invest in gold and silver today

Whether you choose to buy more silver for less, or less gold for more, both precious metals make excellent investments. Silver’s affordability makes it an accessible entry point into the precious metals market, while gold’s enduring value makes it ideal for anyone wanting to preserve their wealth in the long-term.

Whichever metal you decide, we have a vast and exceptional range of gold and silver bullion products at StoneXBullion. Browse our collection of gold, silver, platinum, and palladium bullion coins and bars and start growing your wealth today.