Is Silver poised to outperform Gold in this Gold bull market?

Don’t overlook silver.

Gold has been in the spotlight this year. The yellow metal has set multiple records and has outperformed a red-hot stock market.

Meanwhile, in the shadows, silver has enjoyed a nice run-up of its own. The white metal is up 29 percent year to date, about the same as gold in percentage terms.

And this silver bull may have an even brighter road ahead of it than gold. 

According to analysts at UBS, silver will likely outperform gold over the next 12 months. 

Bullish on Gold

It’s not that UBS has soured on gold. In a recent note, analysts said plenty of momentum remains with the Federal Reserve pivoting into an easing cycle. And there are other bullish factors in play as well.

“It's not just the expectations of lower yields at play, with further support from macro and geopolitical uncertainties, and the continuing trend of USD diversification by central banks.” 

The UBS analysts said that the geopolitical uncertainty and tension are “likely” to extend into 2025, “with the next U.S. government (and its policies) uncertain.” 

“We expect gold to remain a favored market hedge for both geopolitical and rate risks. Historically, the metal has outperformed equities during periods of elevated volatility, which again proved to be the case in recent months despite a less dovish market consensus on the pace of Federal Reserve rate cuts ahead.”

Even more bullish on Silver

Although silver has kept pace with gold this year, most people perceive it as lagging.

And silver is underpriced compared to gold from a historical perspective.

As the UBS report notes, the gold-silver ratio is extremely wide. It is currently over 84:1. That means it takes over 84 ounces of silver to buy one ounce of gold.

To put that into perspective, the average in the modern era has been between 40:1 and 60:1.  

Historically, after widening, the ratio has always returned to the mean. And it has done so with a vengeance, sometimes even overshooting that mean. The ratio fell to 30:1 in 2011 and below 20:1 in 1979.

UBS analysts expect the gold-silver ratio to narrow over the next 12 months, likely dropping back into the 60s. That would mean a significant rally for silver, even as gold continues to climb.

“We maintain our view that silver is set to benefit from a rising gold price environment, which is aligned with Fed policy easing.” 

The UBS report also notes the favorable supply and demand dynamics.

Silver demand outstripped supply for the third straight year in 2023 as mine output dropped and industrial demand set a record.

“Our expectation that the silver market will remain in deficit over the coming years implies continuous declines in above-ground inventories, which should help fundamentally underpin prices as well as act as a tailwind for investor interest.” 

UBS’s projections fit with historical trends.

Silver has historically outperformed gold in a gold bull market, particularly in the later stages.  For instance, gold charted a gain of around 40 percent during the pandemic. Meanwhile, silver was up a whopping 141 percent. 

Technical factors also signal a looming gold breakout, with a secular cup and handle pattern in play. 

History, fundamentals, and technical factors all look bullish for silver. Wise investors are paying attention.