The gold-silver ratio fails, is silver destined to never catch up with gold?

Since 2022, the gold-silver ratio has broken through the historical range of 45-80. Against the backdrop of new highs in gold prices and stagnation in silver prices, the traditional gold-silver ratio seems to have become ineffective.

According to news from the Chasing Wind Trading Desk, Goldman Sachs stated in a report on May 5 that the divergence in gold and silver trends has become a foregone conclusion, and silver prices are unlikely to catch up in the future.

After Russia's reserves were frozen, the central bank's gold purchases increased fivefold, becoming a core factor driving the structural rise in the gold-silver ratio. Although China's solar energy industry has boosted silver demand, it is still insufficient to bridge the performance gap with gold. Analysts expect that by the end of 2025, gold prices will reach $3,700 per ounce, and may climb to $4,000 per ounce by mid-2026.

Central Bank Demand Breaks 40-Year Correlation

Over the past 40 years, gold and silver prices have been highly correlated, with their investment flows (ETF demand and net positions on COMEX) often moving in sync. Silver has performed as a hybrid of gold and industrial metals—its investment flows (usually related to macro uncertainty and real interest rates) are the main drivers of price, while its industrial properties lead to poor performance during economic downturns.

However, 2022 became a turning point for the divergence in gold and silver trends. Since 2022, the gold-silver ratio has continued to trade above the historical high range of 45-80.

Goldman Sachs believes this phenomenon stems from a fundamental change in the central bank demand pattern after Russia's foreign exchange reserves were frozen: Since the freezing of Russian reserves, central bank gold purchases have increased fivefold.

While gold and silver may decline in sync during reversals in investment flows, only gold benefits from structural central bank demand. Given the unique properties of silver, it is unlikely that central banks will start purchasing silver to drive its catch-up with gold.

No Signs of Structural Catch-Up Trading

Goldman Sachs believes that central bank purchases of silver are unlikely to become a credible driving force for catch-up trading. There are three structural reasons why central banks are unlikely to purchase silver:

First, the physical characteristics of gold make it more suitable for reserve management.

Gold is about 10 times scarcer than silver, worth 100 times more per ounce, and has twice the density of silver. Therefore, gold is easier to store, transport, and safeguard. Gold worth $1 billion can fit into a briefcase, while the same value in silver would require an entire freight truck. Gold's chemical properties are stable, maintaining its form, while silver oxidizes and deteriorates.

Second, silver lacks the institutional and economic characteristics that support gold.

Silver is not recognized in the International Monetary Fund's reserve framework and has virtually no substantive presence in modern central bank portfolios. Its industrial properties make it pro-cyclical, making it less suitable as a hedging tool for portfolios. It is more volatile and less liquid—these characteristics reduce its practicality as a reserve asset.

Third, some investors believe that high gold prices may prompt a shift to silver. But central banks manage value, not weight. If prices rise structurally, the amount of gold needed to maintain a fixed dollar allocation will decrease

Industrial Demand Support Insufficient to Bridge the Gap

Although silver lacks support from official sectors, unlike gold, it does benefit from industrial demand. Despite the boom in China's solar industry after 2022 supporting silver demand, it is still not enough to narrow the performance gap with gold.

Goldman Sachs analysis points out that with the slowdown in solar production in China, rising recession risks in the U.S. economy, and strong central bank gold purchases expected to continue through 2025, gold is anticipated to continue outperforming silver.

However, although silver is unlikely to match gold's trajectory, it may still benefit as investors refocus. Given the high correlation of capital flows, the recovery in demand for gold in 2025 could also boost silver. This was already evident in the upward trend in the first quarter of 2025, when ETF inflows and speculative buying supported both gold and silver.

Structurally Bullish on Gold Outlook

Goldman Sachs reiterates its structurally bullish view on gold, fundamentally predicting that gold prices will reach $3,700 per ounce by the end of the year and $4,000 by mid-2026.

Concerns about U.S. governance and institutional credibility, risk aversion, and larger rate cuts by the Federal Reserve could drive gold prices significantly above Goldman Sachs' already bullish fundamental forecast in the potential recession led by U.S. policy. Specifically, if a recession occurs, accelerated ETF inflows are expected to push gold prices to $3,880 by the end of the year. In extreme tail scenarios, such as increased market focus on the risks of the Federal Reserve's subordination or changes in U.S. reserve policy, gold prices could approach $4,500 per ounce by the end of 2025.