Gold-Silver Ratio: Is Silver Undervalued for a 2025 Trade?

The gold-silver ratio (GSR) is a key metric in the precious metals market, representing the number of silver ounces required to purchase one ounce of gold. This ratio is more than just a number; it’s a barometer of relative value, market sentiment, and potential investment opportunities. As of June 2025, the GSR hovers around 90:1, significantly higher than the historical average of 50:1 over the past century. Some analysts believe this indicates that silver is undervalued compared to gold, presenting a potentially lucrative trade for 2025.

Understanding the Gold-Silver Ratio

The gold-silver ratio is calculated by dividing the price of gold per ounce by the price of silver per ounce. For example, if gold is trading at $3,500 per ounce and silver at $40 per ounce, the GSR is 87.5. This means it takes 87.5 ounces of silver to buy one ounce of gold.

Historically, the GSR has fluctuated widely. In ancient times, the ratio was often fixed by governments for monetary stability, around 12:1 or 15:1. However, since the advent of free-floating currencies and the end of the gold standard, the ratio has become more volatile, ranging from approximately 17:1 to 125:1.

What Drives Changes in the Gold-Silver Ratio?

Several factors influence the gold-silver ratio, including:

Industrial Demand: Silver has extensive industrial applications, making its price more sensitive to economic activity than gold. Approximately 50% of silver is used in industrial applications, such as electronics, solar panels, and medical devices. Increased industrial demand can drive up silver prices, lowering the GSR.
Investment Flows: Institutional investors and central banks can significantly impact the ratio through their positioning in the market. Bullion banks, for example, have been shifting to long silver positions in 2025, which could support higher silver prices.
Central Bank Policies: Central banks primarily hold gold reserves, with minimal silver holdings. This creates an asymmetric impact on the metals, as central bank buying of gold can reduce its supply and increase its price, widening the GSR.
Mining Production: Silver is often produced as a byproduct of mining other metals, limiting the ability of producers to increase output in response to higher prices. Constraints in silver mining production can lead to supply deficits and higher prices, narrowing the GSR.
Market Sentiment and Economic Conditions: The GSR is influenced by market sentiment, economic growth, and geopolitical events. During times of economic uncertainty, investors often flock to gold as a safe-haven asset, increasing its price relative to silver.
Inflation: Gold and silver are often seen as hedges against inflation, and their prices tend to rise when inflation increases. However, silver’s behavior can be more complex because it serves as both a precious metal and an industrial commodity.

Is Silver Undervalued in 2025?

With the GSR currently around 90:1, the question arises: is silver undervalued? Several analysts believe so. A high GSR suggests that silver is cheap compared to gold, and there is a strong possibility that silver will go on a bull run to close that gap.

Arguments for Silver Being Undervalued:

Historical Perspective: The modern-era GSR has averaged between 40:1 and 60:1. A ratio significantly above this range suggests silver is underpriced compared to gold.
Potential for Ratio Contraction: Historically, when the GSR reaches extreme levels, it tends to snap back quickly to its mean. The 2020 example saw the ratio compress from 125:1 to 70:1 in just five months, demonstrating how quickly sentiment can shift.
Industrial Demand: Silver’s increasing use in green technologies, such as solar panels and electric vehicles, is expected to drive demand and support higher prices.
Supply Constraints: The silver market has experienced consistent supply deficits since 2021, with demand outpacing production. This trend is expected to continue, further supporting the case for higher silver prices.
Monetary Policy: Expected interest rate cuts throughout 2025 could provide significant support for precious metals prices, including silver. When interest rates are cut, the opportunity cost of holding non-yielding assets like silver decreases.

Potential for a 2025 Silver Trade

Given the arguments for silver being undervalued, a trade focused on silver in 2025 could be profitable. Several factors suggest that silver has the potential to outperform gold in the coming year:

Catch-Up Potential: Silver has historically lagged behind gold in price appreciation. As gold has already made significant gains, silver may be poised to catch up.
Higher Beta: Silver is often referred to as the “high-beta version of gold” because it is more volatile. This means that when gold prices move up, silver tends to move up more, thereby lowering the gold-silver price ratio.
Analyst Predictions: Many analysts predict significant potential for silver price appreciation in 2025. Alan Hibbard, Lead Analyst at GoldSilver, expects silver to return about 25% in 2025, putting it around $40.
Breaking the $50 Barrier: Silver is approaching a critical inflection point and is quickly approaching the major resistance level of $49.50, last reached in 2011. A decisive breakout above $50.00, whether later this year or in early 2026, would mark a generational shift in the market, potentially triggering a rapid move toward $75.00 and ultimately $100.

Risks and Considerations

While the potential for a silver trade in 2025 appears promising, it’s essential to consider the risks:

Volatility: Silver is a more volatile metal than gold, and its price can be subject to sharp swings.
Economic Slowdown: A significant economic slowdown could reduce industrial demand for silver, negatively impacting its price.
Unexpected Supply Increases: Discoveries of new silver deposits or technological advancements in mining could increase supply and put downward pressure on prices.
Changes in Investor Sentiment: Shifts in investor sentiment towards riskier assets could lead to decreased demand for precious metals.

Strategies for Trading the Gold-Silver Ratio

Investors can use several strategies to trade the gold-silver ratio:

Buying Silver: If you believe silver is undervalued, you can buy physical silver bars and coins or invest in silver ETFs.
Selling Gold, Buying Silver: If you believe the GSR will narrow, you can sell a portion of your gold holdings and use the proceeds to buy silver.
Investing in Silver Mining Companies: Silver mining companies often outperform physical metals during ratio contractions, with companies with high silver production showing the strongest correlation to ratio changes.
Options Trading: Options can be used to leverage your investment and potentially generate higher returns.

Conclusion

The gold-silver ratio is a valuable tool for precious metals investors, providing insights into the relative value of gold and silver. With the GSR currently elevated, silver appears undervalued and may offer a compelling investment opportunity for 2025. However, it’s crucial to consider the risks and conduct thorough research before making any investment decisions. By understanding the factors that influence the GSR and carefully evaluating the market dynamics, investors can potentially profit from a silver trade in 2025.