When gold takes the backseat, silver grabs the wheel

With gold pulling back after a strong multi-year run, doubts about its ability to deliver further outsized returns are beginning to surface. Certainly, as recession risks fall and US interest rates are likely to stay elevated, it’s not impossible that gold’s best days in 2025 are already behind us.

But for investors who allocate a fixed portion of their portfolio to alternatives, this new narrative creates a frustrating challenge. Where else can you find a diversifier that offers gold’s rare mix of low correlation to traditional assets and strong price performance?

One possible answer is silver. The shiny metal has a similar track record of low correlation with equity markets and often trades in step with its more famous counterpart. Yet, despite gold’s recent eye-popping rally, silver has yet to fully participate – suggesting potential room for catch up.

In this article, we’ll explore whether silver is on the verge of a breakout, the strategies investors can use to maximise the gold-silver relationship, and how investors can utilise both gold and silver exposures to capitalise on their unique advantages.

Key takeaways

• The Gold-Silver Ratio recently climbed above 100, an extremely rare event, seen only three times since the end of the Bretton Woods system in 1971 and the start of open-market gold trading.
• A strategy which allocates to silver whenever the Gold-Silver Ratio exceeded 60 would have outperformed a gold-only strategy by 3,852% since 1972.
• Gold and silver can be viewed as complementary assets – each contributing distinct, diversifying benefits within a well-constructed portfolio.

A rare time in history

Investors familiar with precious metals will likely know the Gold-Silver Ratio (GSR), a relative valuation metric that measures how many ounces of silver one ounce of gold can buy. A higher GSR typically signals one of two things: either gold is overvalued, or – more commonly – silver is undervalued.

Historically, the GSR has averaged around 60.(1) Significant deviations from this level have tended to revert over time. The ratio has rarely climbed above 90, and rarer still is a reading above 100. Since 1972, the GSR has only breached 100 on three occasions: during the 1990s savings and loan crisis, 2020 COVID lockdowns, and finally, the current period of tariff uncertainty.

It’s clear we are in rarefied territory, but what does it mean for investors?

Quite a lot, it seems.

A long-term analysis of silver returns shows that when the GSR crosses 100, silver averages a staggering 74.2% return over the following 12 months. Even more compelling – the signal has had a 100% success rate across all historical instances.

Admittedly, the sample size for the post-GSR-100 performance is limited. As mentioned previously, there have only been three such periods in history. Even when using rolling daily returns, the dataset expands to just around 50 observations. A more statistically robust indicator, then, may be the average forward 12-month performance of silver when the GSR ranges between 90 and 100, which yields nearly 400 data points. Encouragingly, even this broader range offers a compelling outlook: a 77.75% probability of positive returns, with an average gain of 19.68%.

So, is a silver rally on the horizon? Historical data certainly tilts in that direction. Still, as we often remind ourselves in this industry – “past performance is no guarantee of future results”, and even the most reliable signals eventually lose their edge.

For investors seeking additional context: we’ve also included calculations of the 3-month and 6-month forward returns based on GSR levels, along with their historical probabilities, average wins and average losses, at the end of this article.

Blending Gold & Silver

With the above section, we’ve established that a historic opportunity may currently be presenting itself in silver. But such clear-cut signals are few and far between. This led us to ask a broader question. Is it possible for investors to capitalise on the relationship between gold and silver even when their relative valuations aren’t at extremes?

As it turns out, yes – and the approach is surprisingly simple.

The hypothetical strategy is this: Re-allocate 50% of a portfolio’s gold exposure to silver whenever the GSR crosses, or is above 60 (long-term average), and hold it for one year.

Investors that followed this strategy would have outperformed investing in gold alone by almost 4000% since 1972, and roughly 124% over the past 20 years. Beyond performance, the strategy also delivers a significantly higher Sharpe ratio while maintaining a near-zero correlation with equities. A rare combination of strong returns and diversification.

The logic behind this strategy is intuitive. It capitalises on mean reversion and assumes the long-standing relationship between gold and silver persists. By allocating to silver when it trades cheaply relative to gold, investors are effectively “buying the dip” and positioning for a catch-up rally. Of course, no relationship holds forever – there may come a time when silver decouples from gold as its primary reference point. But until then, the strategy’s remarkable track record is something we’ll be monitoring closely.

Gold and Silver: Partners in portfolio

With gold having dominated the spotlight in recent months, we believe it may soon be silver’s turn to shine. Certainly, a GSR reading above 100 is a historically rare and powerful signal that has often preceded strong silver rallies. Yet this doesn’t mean gold is out of the picture; in today’s dynamic and uncertain environment, gold can continue to play a vital role in portfolio diversification.

Too often, investors view gold and silver as mutually exclusive choices. In reality, the two metals are deeply interconnected, and each brings distinct advantages to a diversified portfolio. We hope this analysis encourages a more nuanced perspective one that sees gold and silver not as rivals, but as complementary tools in portfolio construction.

Appendix: Forward 6-Month, and Forward 3-Month Performance at Different GSR Levels.

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