Silver has a split personality. It’s a safe haven and store of value, like gold, but its widespread industrial use means it can also behave like a base metal. Recently, it’s been doing both. The price has jumped by a third to $15 an ounce this year; gold has gained just 8%.
Investors poured into silver exchange-traded funds early this year and inflows have continued, albeit at a slower pace. And now the economic recovery is lifting industrial demand. Silver has been “reaping the best of both worlds”, says Société Générale’s David Wilson: “sustaining upside from strength in gold” and finding industrial support. Silver’s “Goldilocks” moment is unlikely to last, says Javier Blas in the FT.
Either the recovery will stall, denting industrial demand, or it will endure, lowering the metal’s appeal as a haven. Recovery could do more to undermine investment demand than to raise industrial demand, says Blas. Indeed, Barclays Capital reckons investment demand is set to more than halve next year as the economy recovers, while a 2% rise in industrial consumption would still leave the market with a large surplus.
Yet demand for a haven could well rebound, given the shaky financial system and the threat of inflation amid central bank money printing. Until the murky outlook becomes clearer, however, silver’s upside looks limited. Peru’s Hochschild Mining, expecting a further recovery in industrial demand, thinks silver will trade between $13 and $16 in the next six months.