Many investors have jumped on the gold bandwagon, rushing to buy gold coins and other forms of the precious metal before the price climbs even higher. In their hurry, they often overlook the other precious metal that stands to make large price gains. Silver has great potential, yet it is still extremely undervalued.
Silver is less valuable than gold, which is evidenced by the silver/gold ratio. This ratio illustrates the number of ounces of silver required to purchase one ounce of gold. The odd thing is that in its refined, above-ground form, silver is much rarer than gold. Some reports claim that there are approximately seven times more gold than silver in the world. With that being said, one wonders why silver is still so cheap.
In the ground, there is less gold than silver and in the past, approximately ten to fifteen times more silver than gold was mined. Currently, less silver is mined because it is more costly to mine and sell silver, based on its cheaper sale price. Approximately seven times more silver is mined each year than gold. This would lead us to conclude that the silver price should be 1/7th the price of gold, when in fact it is much less.
One reason why silver is so inexpensive is that it is no longer used as currency. Gold is a more convenient way to store value than silver. This creates an increased demand for gold and a reduced demand for the closest alternative, which is silver. Central Banks also favor gold over silver, despite the fact that an equivalent value of silver is safer from theft.
Value investors recognize that silver is extremely undervalued. They realize that silver cannot become less valuable but will soon reverse course. At this point, silver will possibly become more valuable than gold.