Silver price begins to catch up with gold

published 30 July 2020

If gold is the “money of kings” then silver is “that of gentlemen”, says Ned Naylor-Leyland of Jupiter Asset Management. The two precious metals are “siblings”.

While the gold rally has grabbed the headlines, silver has gained 36% in the last month alone. It reached $24 an ounce this week and was close to £19/oz in sterling terms, a seven-year high. The pace of recent gains has been frenetic, with silver jumping by 15% last week.

The rally has been driven by similar forces to those pushing gold higher: falling real yields and a growing desire for a safe haven. Yet the recent price action is a reminder that silver is a much more volatile commodity than gold. Silver tends to follow gold, but at a “lag”, says a recent Goldman Sachs note quoted by Krystal Chia and Ranjeetha Pakiam on Bloomberg. Typically, a gold rally gets underway first, then gold bulls, looking for a way to diversify their bets, turn to silver. The metal has been trading at “close to a record discount” to the yellow metal this year but is now stepping “out of gold’s shadow”. The gold/silver ratio certainly suggests further upside, says Naylor-Leyland. In 2011, when silver hit a record $49.50, you needed 32 ounces of silver to buy one ounce of gold, yet that ratio has expanded to approximately 80.

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In addition to being a precious metal, silver is also used in industry, including fast-growing areas such as solar panels, 5G networks and 3D-printing. Around half of silver demand stems from industry. Supply constraints are proving another tailwind, says Clara Ferreira Marques on Bloomberg. Latin America is the world’s biggest silver miner, but virus-linked closures in Peru and Mexico should see production fall by 7% this year according to figures from The Silver Institute. There is “room for silver to keep shining”.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.