How Rare is Silver vs Gold? A Detailed Comparison

The Short Answer

Silver is around 19 times more abundant in the Earth‘s crust than gold. However, gold has historically traded at a much higher price – averaging around a 50:1 ratio relative to silver over time. This price premium is driven by gold‘s status as the ultimate monetary asset and safe haven investment. Going forward, silver may become more scarce due to surging industrial demand. While gold should anchor any precious metals portfolio, silver offers more growth potential.

Geological Scarcity

Let‘s start with the basic geology. As an experienced precious metals analyst, I estimate silver is around 19 times more abundant than gold in the Earth‘s crust, based on the latest geological surveys. But before you run out to load up on silver, keep this rarity in context.

Silver accounts for only 0.08 parts per million (ppm) of the crust. That‘s still incredibly scarce. For comparison, copper is about 50 ppm. And iron, one of the cheapest metals, is over 41,000 ppm!

So while silver outpaces gold in geological abundance, both metals are still exceptionally rare. This rarity, combined with their unique properties, is why gold and silver have been prized for millennia.

Annual Mine Production

Now, just because silver is more abundant in the Earth‘s crust doesn‘t mean more of it gets mined each year. Based on U.S. Geological Survey data, global silver mine production averaged 27,000 metric tons per year over the past decade. Gold mine output averaged just 3,300 metric tons over the same period.

So around 8 times more silver gets mined annually. But it takes a massive amount of effort and expense to extract enough widely dispersed silver from ore to beat gold on annual production. You could say this makes new silver annual supply actually more "economically scarce" than gold.

Historic Price Ratio

Now on to prices. Over the long run, the gold:silver price ratio has averaged around 47:1. This means it would take 47 ounces of silver to buy a single ounce of gold. Recently, the ratio has been closer to 75:1 as gold has outperformed.

But as the chart below illustrates, this ratio fluctuates dramatically over decades based on the macroeconomic climate and stage of the business cycle.

As you can see, the gold:silver ratio tends to decline during periods of high inflation that boost precious metals prices. The 1970s saw ratio lows near 15:1. Conversely, the ratio peaks near 90:1 during metals bear markets.

Why Such a High Ratio?

Now you may be wondering, if silver is much more plentiful in the Earth‘s crust, why has gold consistently traded at such a high ratio to silver – around 50 times higher over the long run?

The answer comes down to gold‘s monetary history and perception as the ultimate stable store of value. Gold has been used as money for millennia and hoarded by central banks worldwide. This gives it a liquidity and market depth that silver can‘t match.

When crisis hits, gold benefits from a "flight to safety" far more than silver, driving the ratio higher. But silver has potential to close the gap during periods of rising inflation expectations. The bottom line is gold commands a higher price due both to its relative rarity and crucially its monetary reputation.

Comparing Supply and Demand

One area where silver differs substantially from gold is the composition of supply and demand. Let‘s take a look under the hood…

Silver Demand Drivers

Around 50% of silver demand stems from industrial uses including electronics, batteries, solar panels, et cetera. Another 35% comes from jewelry, coins and bars, with the remainder used in photography, silverware and awards.

Silver‘s physical properties make it ideal for a wide range of technologies and products essential to global economic growth. As emerging market incomes rise, silver demand for electronics and vehicles is projected to increase steadily. If we see more inflation, investment demand should also pick up.

Gold Demand Drivers

Conversely, around 70% of gold demand comes from direct investment in bars, coins and ETFs, plus jewelry. Only around 15% of gold demand is industrial. The bulk of investment goes toward vaulting in bullion banks, ETF holdings, and central bank purchases.

This high monetary demand gives gold an advantage as a stable store of value. But it also means gold prices are less responsive to swings in industrial output. This dynamic explains much of the divergent price action between silver and gold.

Playing the Investment Angles

How can we apply insights about relative rarity and demand trends to investing in gold and silver? Let‘s explore some portfolio tactics and scenarios.

Gold as the Cornerstone

Given gold‘s scale, liquidity and role as ultimate money, it deserves the lion‘s share of any precious metals portfolio. If you‘re looking to hedge against systemic risks over the long-run, gold is the rock to build upon.

I‘d recommend allocating 60-80% of your precious metals dollars to physical gold coins or bullion. Ounce for ounce, you get far more resilience and diversification relative to other assets by going big on gold.

Silver for Growth Potential

On the other hand, if you‘re willing to tolerate more volatility, silver offers greater upside potential thanks to its industrial flexibility and role as an inflation hedge.

I suggest allocating 20-40% of your precious metals portfolio to physical silver coins and bars. Look at silver as a tactical play on global decarbonization and rising living standards in the developing world. It could really surprise to the upside in the right macro environment.

Watch the Gold:Silver Ratio

Keep an eye the gold:silver price ratio as a trading signal. When the ratio nears 90:1 like today, silver might be a good value play for the patient investor. If we see the ratio drop toward 30:1, it may be time to take some silver chips off the table and rotate back into gold.

Apply this barbell approach to precious metals investing, and you‘ll smoothly navigate any economic weather using gold as your anchor and silver to spice up returns.

Concluding Thoughts

Silver has potential to become scarcer relative to gold going forward. Surging industrial use from solar panels to smart devices could tighten silver supplies available for investors. While gold will always be the monetary leader, silver deserves a sizable role in your portfolio as an inflation hedge with growth upside.

The ideal precious metals portfolio has gold as its foundation, with silver adding growth potential during periods of rising industrial and investment demand. This balanced approach allows you to profit from silver‘s volatility while still safely protecting your wealth over the long-run with gold.