As precious metals begin to reverse course and rally, silver could have more upside than gold.
2021 was an odd year in the precious metal space, which struggled to gain traction in an unusual market environment. “Silver had no life of its own this year, fluctuating merely in gold’s slipstream. On balance, it suffered disproportionately high losses as compared with gold. As a result, the gold/silver ratio has climbed from a good 70 at the beginning of the year to over 80 now,” said Commerzbank analyst Daniel Briesemann to Kitco News.
Despite often being dragged around by gold, silver has multiple functions. Like gold, it serves as an inflationary hedge. But silver also has a number of industrial uses, particularly in green energy technologies.
If the headwinds that have been preventing a precious metal breakout begin to diminish — and it seems they might, given the current inflation environment — that could signal to investors that silver could get hot. The gold-silver ratio also indicates that silver is poised to break out.
“There’s certainly that catch-up story built in there. It has underperformed gold to date. And you’ll find some switching by investors into the silver market as a consequence of that,” said ANZ senior commodity strategist Daniel Hynes. The average gold-silver ratio in the modern era has been between 40:1 and 50:1, so the current number is an outlier.
Silver also benefits from strong showings in commodities. If the supply chain gets untangled, silver could benefit, especially given the focus on more environmentally friendly technologies. “The industrial component of the silver market will tend to benefit more against a macro backdrop, which is still resulting in above-trend growth on a global basis,” said Hynes. “Silver can hold up relatively well off the back of the industrial component as opposed to gold over the next 12 months.”
The Global X Silver Miners ETF (SIL) offers investors exposure to silver through mining companies. This is a great option for investors who see silver’s upside but don’t want to necessary deal with holding physical silver.
SIL has an expense ratio of 0.65%.
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