Silver’s split personality

Silver is usually overshadowed by gold in the financial pages. So few have noticed that the so-called grey metal has been among the best-performing commodities in 2012. It has gained more than 25%. At around $35 an ounce, silver is at a five-month high. It hit a 30-year high of $48 last spring.

“Gold and silver are money. Everything else is credit,” says JP Morgan. Like gold, silver is seen as a monetary metal and hence a traditional haven against inflation. Silver tends to mirror and amplify gold’s movements, as the silver market is very small. The long-term picture for precious metals, which have been in a bull market for a decade, remains encouraging.

Not only could the euro crisis still end in financial turmoil, but “global quantitative easing (QE) has gone into overdrive”, says Barry Stupler on The Japanese and British central banks have started to print more money and the European Central Bank’s three-year loans to banks are also effectively a form of QE, as banks have bought government bonds with the cash. “If another protracted inflationary episode lies in our future, small investors will almost certainly flock to ‘poor man’s gold’,” says Richard Band on

But silver is also an industrial metal, with around half of demand stemming from this source. Photography used to be the main industrial use, but this is gradually being replaced by new markets, notably in electronics and medicine.

The strong recent economic data, or “positive growth shocks”, as Michael Lewis of Deutsche Bank puts it, are thus a factor in the recent upswing. Silver is “primarily an industrial metal”, says Lawrence Williams on, “with substantial jewellery and hard-money overtones”.

Silver’s split personality suggests it should be a good long-term bet as industrial applications increase and precious metals remain in a bull market. The widely watched gold-silver ratio (gold’s price divided by silver’s) is currently around 50, compared to a long-term average of 40, so this also suggests further upside.

But given its strong recent run-up and history of violent corrections, those who can stomach the metal’s volatility should probably wait for the next dip before scooping some up. They can track the price with a silver-backed ETF, the ETFS Physical Silver (PHSP). Those who can’t should just stick to gold.

  • Dominic Ferszt

    I’m bullish on precious metals, but I’m not convinced that the gold-silver ratio is a meaningful indicator in financial decision making. Silver’s evolving industrial uses (e.g. photography v electronics and medecine as mentioned in the article) suggest permanent changes to the metal’s demand profile which will not be mirrored in any way by gold. This implies the ratio is unlikely to revert to any mean over time. If we witness a collapse of the global fiat currencies, this ratio will likely find itself somewhere completely new. Both these metals are better assessed on their individual supply and demand metrics


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