Silver vs Miners: What History Really Shows

Key Concepts

• Silver vs. Miners: The core discussion revolves around whether investing directly in silver or in silver mining companies (miners) yields better returns during a precious metals bull market.
• Market Capitalization (Market Cap): The total value of a company’s outstanding shares, used to categorize miners (junior miners having smaller market caps are more speculative).
• AE Index (American Stock Exchange Gold/Silver Index): A historical index tracking gold and silver mining companies, used for long-term data analysis due to its extensive timeline.
• GDX (VanEck Gold Miners ETF): A popular ETF tracking a basket of gold mining companies, closely mirroring the AE Index but with less historical data.
• AE vs. Silver Ratio: A key metric used to determine whether miners are outperforming or underperforming silver. An upward trend indicates outperformance, while a downward trend indicates underperformance.
• Bull Market: A period of sustained price increases in a financial market.
• Volatility: The degree of variation of a trading price series over time.

Precious Metals Investment: Silver vs. Miners – A Historical Analysis

This discussion, led by Patrick Kim and Kevin Wodsworth, focuses on a historical analysis of investment performance between physical silver and silver mining companies, particularly during bull market cycles. The central argument is that while miners can offer significant gains early in a bull market, silver consistently outperforms a broad basket of miners over the entire duration of a sustained bull run.

Historical Bull Market Performance (1970-2011)

Kevin presents data comparing silver price movements with the AE Index (a gold and silver mining index) across two previous precious metals bull markets:

• 1970-1980: Silver increased over 2,500% from its low point. The AE Index increased approximately 1,000%. Silver significantly outperformed the mining index. The miners initially outperformed (1970-1974) but then underperformed silver for the remainder of the bull market.
• 2000-2011: Silver increased over 1,000%. The AE Index increased approximately 660%. Again, silver outperformed the mining index. Similar to the 1970s, miners outperformed in the early years (first three to four years) but then underperformed silver as the bull market matured.

Current Market Dynamics (2020-Present)

The discussion notes that a new precious metals bull market potentially began around 2020, with a significant breakout occurring in 2024/2025 when silver broke above previous resistance levels, reaching close to $90 from around $28-30. Currently (as of the recording), the AE vs. Silver ratio has been relatively sideways for the past 10-15 years, with a slight recent outperformance by the miners. This aligns with the historical pattern of miners leading in the early stages of a bull market.

The Risk of Junior Miners & Volatility

Kevin emphasizes the high volatility and speculative nature of smaller mining companies (junior miners) with low market capitalization. He draws a parallel to memecoins in the crypto sector, highlighting the potential for rapid gains but also substantial losses. He states, “a little bit like memecoins in here in in the crypto sector, but also like memecoins in the crypto sector, they're a very easy way to to lose all your money because by the time you hear about them, um they've probably already moved a,000% or 500%.” He stresses the need for in-depth company knowledge beyond a “passing knowledge” when investing in individual miners.

Why Miners Eventually Underperform

The analysis suggests that miners eventually underperform silver due to factors impacting their operations that don't directly affect the metal's price. These factors include:

• Rising Input Costs: Increased oil prices, energy costs, and other operational expenses.
• Operational Challenges: Industrial action, war, political instability, and other disruptions to mining operations.
• Institutional Investor Concerns: These risks deter institutional investors, impacting demand for mining stocks.

Kevin clarifies that the AE vs. Silver ratio declining doesn’t mean miners are losing value, but rather that they are increasing at a slower rate than silver.

Strategic Implications & Rotation

The key takeaway is that investors should be prepared to “rotate back into the metals” once the AE vs. Silver ratio begins to decline again, indicating that miners are underperforming. This suggests a strategy of initially allocating capital to miners during the early bull market phase, then shifting towards silver as the bull market matures.

Data & Statistics

• Silver Price Increase (1970-1980): Over 2,500%
• AE Index Increase (1970-1980): Approximately 1,000%
• Silver Price Increase (2000-2011): Over 1,000%
• AE Index Increase (2000-2011): Approximately 660%
• Silver Price Increase (2020-Present): Tripled in price since breakout around $28-30, now near $90.

Conclusion

The discussion provides a data-driven perspective on investing in precious metals, advocating for a nuanced approach that considers the stage of the bull market. While miners can offer leveraged gains early on, silver historically provides more consistent and superior returns over the long term. The AE vs. Silver ratio serves as a valuable indicator for timing a strategic rotation between these asset classes. Kevin concludes by advising investors to rely on evidence-based analysis rather than “snake oil salesman” promises of guaranteed gains from miners. He emphasizes, “the charts will keep you sane.”