Silver Is Catching A Wave This Quarter

Silver Is Catching A Wave This Quarter

over 3 years ago2 mins

After the price of gold relative to that of silver hit its highest level in 5,000 years recently, the fortunes of the two precious metals have been markedly different: while gold has rebounded 17% from its March lows, silver has risen a remarkable 47% 🍽

What does this mean?

Both gold and silver saw their prices tumble in March as the big bad bear market for stocks forced investors to sell even some traditional “safe havens” in order to raise cash. But silver fared worse: the metal’s price is more closely linked to industrial demand, which was looking pretty bleak.

That sent the ratio of gold-to-silver prices spiking to 126 – its highest level on record. And while investors worried about further stock market downturns have since pushed gold’s price back up near all-time highs of its own, the return to safe havens has seen silver price growth three times stronger.

The gold:silver ratio spiked this year but has rapidly cooled down since
The gold:silver ratio spiked this year but has rapidly cooled down since

As roughly half of silver demand comes from industrial uses, an improving long-term economic outlook (admittedly after a damaging 2020) has likely supported a bigger rebound in its price, as well as those of other growth-sensitive commodities such as copper and oil ⛲️

Why should I care?

Popular exchange-traded funds such as the iShares Silver Trustmay have seen big increases in investment recently, but it’s not easy to balance improving industrial activity (which could boost silver’s price further) against an improving economic outlook that could see rising stock markets tempt investors away from safe havens in general.

What’s more, investors may prefer gold’s heightened rarity if things head south again. It’s still outperformed silver in 2020 overall, rising 13% while silver has fallen 2% – and gold has also provided a much better return over the past decade.

Two major ETFs serve as close proxies for gold and silver prices (Source: Yahoo Finance)
Two major ETFs serve as close proxies for gold and silver prices (Source: Yahoo Finance)

Nevertheless, as its price comes off record relative lows, silver may be poised to perform better in the long term – not least due to the potential for growing demand from solar power and electric vehicles. Only time will tell whether this decade proves to be argentine… 🇦🇷

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