Experienced commodities and precious metals investors know that gold is the big kahuna in this space and owing to high price points, among other reasons, palladium and platinum enjoy their own notoriety. That leaves silver somewhat overlooked.
However, the investment case for the metal is potentially compelling and expanding. Like gold, it can act as inflation hedge and like bullion, it is popular among collectors and in the jewelry market, with those avenues accounting for about a quarter of overall silver demand.
That speaks to some of the consumer demand for silver, but that can be cyclical. Fortunately for investors considering silver, it has extensive industrial applications — far more than those possessed by gold.
Silver’s “industrial usage has substantially increased in the last years due to silver’s great characteristics of thermo-electro conductivity, ductility, malleability, and high sensitivity to light. The metal is used extensively in a variety of faster-growing electronics segments, such as solar panels, LED lighting, flexible displays, touch screens, RFID tags, cellular technology, and water purification,” noted Global X analyst Rohan Reddy.
Silver Industrial Demand Soaring
As Reddy pointed out, current demand is 46% industrial. However, that figure could increase in the years ahead as more companies and governments forge ahead with renewable energy and net zero plans. A variety of clean energy products feature silver among their primary production materials.
The reason for that is simple: it offers superior conductivity relative to gold. As such, gold’s industrial demand is a mere 6%. For example, silver is a key ingredient solar panels, due to its attractive pricing and better conductivity relative to gold. In other words, it now has a long-term demand driver gold does not possess.
Another point for investors to consider is silver’s correlations to traditional asset classes, namely stocks and bonds. After all, that’s one of the primary benefits of embracing commodities: Adding an asset class to a portfolio in need of diversification. Data indicates silver checks this box.
“However, over the past decade, silver has shown a negative correlation of -0.15 with US interest rates, which is weaker than gold’s one at -0.41, while the correlation with equities is relatively stronger: Silver exhibits 0.26 with the Standard and Poor’s 500 (SPX) index while gold’s -0.09, indicating silver’s significant industrial demand and underlying its unique position as both a precious and industrial metal that makes it an appealing addition to portfolios,” added Reddy.
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