For decades, gold and silver moved together. Now analysts see a structural break that could reward silver holders 2-3x faster than gold. Here’s the technical case for compression.
The Setup: Why Gold and Silver Move Differently
The metric at the center of this thesis is the gold-to-silver ratio: how many ounces of silver it takes to buy one ounce of gold. Historically trading in the 40-70 range, the ratio currently hovers around 80-near multi-decade extremes-and analysts argue this disconnect reflects an emerging opportunity, not equilibrium.
The Technical Case for Compression
Veteran analyst Francis Hunt presents a pattern-based argument grounded in historical precedent. The gold-to-silver ratio recently triggered what Hunt identifies as an inverted head-and-shoulders formation-a pattern associated with reversals in trend.
The evidence Hunt points to:
- 2019 setup: The ratio sat around 90-95, having compressed from 128. Hunt called for a move to 52 (the ratio falling, meaning silver strengthening). The ratio eventually reached 52 during the COVID crisis.
- 2024 repeat pattern: Hunt observes an identical technical formation at similar extremes, with neckline targets at 28-a number historically significant in precious metals cycles.
- Current trajectory: The ratio has already moved from 28 toward the low-to-mid 70s, supporting the technical thesis of an ongoing reversal.
Hunt frames this as an “overreaction moment”-a peak compression that wouldn’t necessarily persist. But during that window, silver holders would experience amplified upside.
If this pattern extends as Hunt suggests, the ratio could eventually reach single digits-meaning silver would appreciate dramatically faster than gold.
What Single-Digit Ratios Actually Mean
At a gold-to-silver ratio of 9.99, gold and silver would be trading at a historical parity not seen in modern times. Put another way:
- If gold reaches $15,000 per ounce, silver would trade near $1,500
- If gold reaches $25,000, silver approaches $2,500
- At more extreme levels, silver’s percentage gains would dwarf gold’s
The Supply Story Supporting Compression
Beyond technical patterns, fundamental factors buttress the bull case:
Industrial demand acceleration: Silver consumption is rising across AI infrastructure, data centers, solar installations, and defense applications. Unlike gold, silver’s utility creates perpetual demand pressure beyond monetary considerations.
Supply constraints: The silver market has operated with multi-year deficits. Major producers face declining ore grades and limited new projects in development. China, India, and Russia have shifted from net sellers to net accumulators at the sovereign level.
Price lagging demand: Silver’s nominal price remains far below 1980 highs on a nominal basis-and substantially lower when adjusted for inflation. Analysts argue this reflects chronic undervaluation rather than oversupply.
Geopolitical reallocation: Central banks globally are shifting allocations away from paper assets toward precious metals. As this continues, industrial demand for silver tightens supply available for investors.
The Two-Ratio Framework
Hunt emphasizes that ratio compression doesn’t require gold to stagnate. Both metals can appreciate while silver appreciates faster.
This matters strategically: if you believe the broader precious metals bull case (currency debasement, fiscal deterioration, geopolitical fragmentation), then silver offers leveraged exposure to the same macro thesis.
Timing and Volatility: The Real Challenge
Here’s where the analysis becomes practical rather than theoretical: Hunt doesn’t specify when single-digit ratios might occur. The 2019 setup played out over months; other cycles have taken years to fully develop.
For investors, this creates a material difference between direction (likely higher silver relative to gold) and timing (unknown). Markets frequently move in the direction of analysis while arriving at outcomes far slower than expected.
Volatility compounds the timing problem. Silver experiences sharper drawdowns than gold during corrections. A 20% correction in gold might translate to a 40% silver pullback-enough to shake conviction if you’re unprepared psychologically.
The Leverage Double-Edged Sword
Silver’s sensitivity to gold-ratio changes creates two-way leverage:
During precious metals rallies, silver outperforms dramatically (potentially 2-3x gold’s gains)
During corrections, silver underperforms just as sharply
This is why Hunt emphasizes holding physical silver rather than leveraged positions: the compounding risk of leverage plus silver’s volatility plus uncertainty about cycle timing creates meaningful risk of forced liquidation at the worst moment
Practical Considerations for Investors
The analysis hinges on several assumptions worth examining:
The macro thesis holds: That currency debasement accelerates, central banks maintain accumulation, and geopolitical fragmentation increases precious metals demand. Policy shifts could alter these dynamics.
Pattern reliability: Technical patterns work probabilistically, not deterministically. The 2019 pattern preceded COVID-an exogenous shock that accelerated the thesis. Future patterns may resolve differently.
Liquidity at extremes: At single-digit ratios during panic conditions, how easily could investors actually transact without significant slippage? Physical silver especially faces constraints at elevated prices.
Regulatory risk: At the point of maximum compression during maximum panic, governments historically have intervened in precious metals markets through confiscation, taxation, or transaction restrictions.
Why This Matters Beyond Price Targets
The ratio compression thesis offers value even if specific price targets don’t materialize. It reframes the precious metals portfolio question from “Will gold go up?” to “Is the current silver undervaluation relative to structural demand justified?”
If you believe debasement is real and accelerating, then silver’s current valuation likely represents an asymmetric opportunity-one where the downside is limited (already depressed) but upside is considerable.
The ratio reversal thesis essentially says: the market has mispriced silver’s industrial necessity, monetary insurance value, and supply constraints into a relationship with gold that cannot persist indefinitely.
The Bottom Line
Analysts pointing to a historic gold-silver ratio reversal aren’t claiming certainty-they’re identifying asymmetry. Silver trading at current ratios appears to undervalue both its industrial demand and its monetary insurance characteristics relative to gold.
Whether that compression occurs at 50, 30, or 9.99 is less important than recognizing the structural case for silver outperformance. The ratio provides a measurable framework for tracking this thesis-and for identifying when the opportunity has fully priced in.
This article is for informational purposes only. The opinions and analysis herein are those of the author and are not financial advice. The Jerusalem Post (JPost.com) does not endorse or recommend any investments based on this information. Investors should consider their financial situation, investment goals, and risk tolerance before making any decisions. Consulting a qualified financial advisor is recommended. JPost.com is not liable for any investment losses from using this information. The information provided is for educational purposes only and should not be considered as trading or investment advice.
