Understanding the Gold-Silver Ratio: Silver's Potential and Price Manipulation

Silver is an undervalued commodity with lots of potential for price growth due to its supply and demand fundamentals. Silver is used in electrical wires, electronics, batteries, LED chips, semiconductors, water purification, military, aerospace, jewelry, currency, etc. Yet, the gold-silver ratio is 70:1 (one can purchase 70 ounces of silver for an ounce of gold). Silver has a massive industrial demand, reflected in the growing global silver deficit, expected to rise by 17%, bringing us to 215.3 million ounces. The demand for silver is growing, and the supply is decreasing, which, according to textbook economics, should drive up the price of silver. So the question is, why is silver still priced so low? 

Silver Price Manipulation 

As mentioned, silver has strong demand in the industrial sector. Most industrial components require silver, which means if the silver price stays low, governments and large corporations stand to benefit. If the silver price were to increase to its “real” value, the cost of production would skyrocket.  

Many silver investors believe that the silver price is heavily manipulated. There are many theories; some believe central bankers control precious metals, while others blame big banks and their use of derivatives; naked' shorts and high-frequency trading to suppress the silver price.  

Additionally, concerns arise over the disparity between the paper market in silver and physical silver, the integrity of London trading, dwindling Comex inventories, and the practice of silver leasing. At first glance these theories hold weight, especially given that the smaller silver market is more susceptible to influence, and some financial institutions have been penalized for manipulating silver prices in the past. 

In the 1960s, the U.S. government famously fixed the price of silver at $1.29 per ounce. During the 1970s, the Hunt brothers attempted to dominate the silver market. While their efforts drove prices up rather than down, they still significantly impacted the market. 

The Silver Institute 

The Silver Institute collects and publishes statistics and other information about silver's production, distribution, consumption, and uses. However, many investors question their integrity. If the Silver Institute does not report accurate data, or downplays the demand and deficit, this would dramatically impact silver pricing. It’s believed that the Silver Institute was formed to keep silver prices low to benefit industrial users, particularly in the military and aerospace sectors. Although the Silver Institute is independent, it plays a crucial role in the silver market and pricing.  

Is Silver Bullion a Good Investment? 

After hearing all the theories on silver price manipulation, many investors may feel uneasy about whether silver is worth investing in. So, the question remains: why invest in silver if it's manipulated?  

Many silver enthusiasts believe the system will eventually crack, and prices will skyrocket. Others believe that price manipulation can't last forever and that the big banks will find themselves on the wrong side of their short positions.  

Based on basic economic fundamentals, the supply and demand relationship is on par with a massive silver price increase. Silver must catch up at some point, and it's just a matter of time before the silver price catches up with the silver deficit.   

Silver is still a commodity and a physical asset that holds great value to the world. Like gold, silver tends to rise during economic and political instability. Therefore, holding silver in your portfolio is a hedge against inflation and an insurance policy in the event of war, recession / depression or a stock market crash. Its potential for phenomenal growth also makes silver an attractive investment. 

To buy silver bullion, browse our selection of silver bars, coins, and rounds here. You can also call us at 1.888.861.0775 to speak with one of our sales representatives.