Alongside bonds, one way of diversifying a portfolio away from equities is through commodities. Gold performed well throughout 2024, hitting new all-time highs and beating several of the major equities indices including the S&P 500 with gains of 27.2% through the year.
The same is also true to a large extent of silver, which gained 21.5% through the year. There are, in fact, many reasons why now could be a good time to invest in silver.
Gains in the silver price have, however, petered out over the past three months. Having peaked at $34.83 on 22 October, silver prices have fallen 8.9% in the three months to 29 January.
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There are several factors to consider when deciding whether or not to invest in silver.
The investment case for silver is distinct from gold. While it is, similarly, a precious metal with a rich history of usage in coinage, in the modern era it is silver’s industrial qualities that have the greatest bearing on its price.
“55% of annual demand [for silver] comes from industry or tech, compared to less than 10% for gold,” Adrian Ash, director of research at BullionVault, tells MoneyWeek. “Look around you; if something’s got an on/off switch, it most likely contains silver.”
Other industrial use cases include brazing and alloys, the chemicals industry and medical equipment – the latter benefiting from the fact that bacteria cannot grow on silver, an inert ‘noble’ metal.
For these reasons, silver “sometimes tracks action in copper prices more than the ‘safe haven’ precious metal”.
All of that said, many of the same drivers that impact the gold price – financial stress, interest rates, inflation expectations and policy decisions – also apply to silver. “Indeed, you can think of silver as gold on crack,” says Ash. “More irrational, more volatile, more dangerous; but also more fun if you’re looking for risk.”
Is silver a good investment?
As well as the industries above that have traditionally driven silver demand, Ash also highlights three “boom industries” to which silver is particularly relevant: renewable energy (particularly photovoltaic (PV) solar panels); artificial intelligence (AI), thanks to its use in wiring, connectors and switches; and defence, for the same reasons.
The rise of these industries is, potentially, contributing towards an imbalance of supply and demand for silver which should, over the medium term, be positive for the silver price.
According to The Silver Institute, between 2015 and 2023 annual demand for silver increased from 1.07 billion ounces to 1.20 billion. Over the same period, supply fell from 1.05 billion ounces to 1.01 billion. There is, in other words, a widening gap between the amount of silver required and the amount produced.
The boom industries are the main drivers of increasing demand. Total industrial silver demand increased from 457 million ounces in 2015 to 654 million in 2023, and that number is expected to jump by 9% to 711 million ounces in 2024. Electronics, particularly PV solar panels, is the largest driver of increasing industrial silver demand.
One thing to keep in mind when considering investing in silver, though, is its volatility. Futures and options speculators call it “the devil’s metal”, says Ash, on account of its propensity to make sudden, sharp moves just as they think they’ve figured it out.
“That's less of a risk for investors trading physical bullion at spot prices, but its volatility is still significant,” says Ash. “While that can bring opportunities, it can also leave you nursing losses for extended periods of time.”
Should you invest in silver or gold?
If you are considering investing in a precious metal like silver, you are probably also at least thinking about investing in gold.
The two metals function quite differently as investments. Gold lacks as many industrial applications as silver, but has historically been a more reliable store of value.
That said, their historical significance as precious metals used in coinage means that gold and silver are often directly compared by investors. The gold-silver ratio is reckoned to be the oldest continually-tracked financial ratio in existence. It describes how many ounces of silver are required to buy one ounce of gold.
The gold-silver ratio is approximately 89.94 at the time of writing. Prior to this decade, anything above 80 would have been considered high, indicating that gold was overvalued and that it’s time to invest in silver.
However, the picture isn’t that straightforward anymore. The gold-silver ratio topped 112 briefly in early 2020, in response to the Covid pandemic, and while it fell sharply soon afterwards, it has stayed in the mid-70s or higher for the last three years.
The longer term trend seems to indicate that the gold-silver ratio is settling at a higher level than it has been historically. “The gold-silver ratio has averaged 68.1 ounces of silver per 1 ounce of gold since NYE 1999. That’s up from 57.1 across the prior 25 years,” says Ash.
Ash puts these elevated levels down to silver no longer serving a monetary purpose, “whereas gold continues to find strong demand from central banks wanting to spread their portfolio risk”.
That said, “many analysts expect some level of mean reversion in the gold-silver ratio, not least because repeated deficits of silver mining supply versus soaring demand should support if not boost prices for years to come”, he adds. If so, this could support the view that gold is overvalued compared to silver.
On 27 January, Capital Economics published research suggesting that silver will outperform gold over the coming years.
“Given the growing use of silver in fast-growing and non-cyclical sectors, as well as sluggish supply growth, we think silver prices will rise over the next two years, outperforming both gold and the consensus forecast in the process,” wrote Ankita Amajuri, assistant economist at Capital Economics.
In particular, Amajuri believes that increased silver use in PV solar panel manufacturing will drive demand for silver in coming years. “Attempts to substitute silver with copper have not seen commercial success so far, and silver appears to be irreplaceable in large-scale manufacturing of PVs for now,” she wrote, citing IEA estimates that global solar PV capacity additions will triple in 2024-2030 based on the six years before this period.
“We expect demand for silver from the photovoltaic industry to make up over 30% of total silver demand by 2030,” she adds.
Additional demand drivers are of course AI, which is heavily reliant on silver in its component hardware, including computer chips.
While AI and solar energy drive increasing silver demand, Amajuri argues that “supply will struggle to keep up”. Global production of silver from mines has stagnated since the pandemic, and recycled silver production could be held back by complex technical processes and high costs.
Where is the silver price going in 2025?
Sentiment seems to suggest that silver prices could continue to rise this year, according to a survey from BullionVault. While BullionVault itself doesn’t make commodity price forecasts, it does survey its customers twice annually to gather their views on where gold and silver prices could go.
December’s survey of nearly 1,450 users shows substantial optimism, with respondents predicting that the silver price will reach $36.90, up 27.6% from New Year’s Eve, by the end of the year.
“Investors are now optimistic about gold and silver for 2025 because they are so pessimistic on geopolitics and government debt” says Ash. “With Donald Trump's return to the White House threatening to up-end global trade as well as the West's political and military alliances, investors are taking the potential of precious metals very seriously as a hedge against risk.”
How to invest in silver
There are various ways to invest in silver.
You can, in theory, buy physical silver in the form of silver coins or bars. These, however, incur 20% VAT, and according to Ash will also include 10-15% dealing spreads on top.
“That simply isn’t an investment,” he says.
Specialist custodians such as BullionVault can enable you to avoid sales tax while cutting this trading spread too. Using a custodian should also save the expense and risk of storing and insuring physical silver on your own property, as they will normally store your silver in a professional level vault.
Alternatively, you can gain exposure to movements in silver prices by buying a physical silver exchange-traded commodity (ETC). An ETC behaves similarly to an ETF, but it tracks the spot price of a particular commodity, as opposed to a bundle of stocks. The iShares Physical Silver ETC (LON: ISLN), for example, tracks the spot price of silver.
Buying shares in silver miners is another way to invest in silver. However, bear in mind that this is a different and arguably riskier investment than in physical silver or a tracker for the spot price, because while changes in the silver price will impact the share prices of silver miners, they are also exposed to other, unrelated factors, such as company mismanagement.
A combination of both these approaches would be to buy an ETF which comprises silver miners, such as the Global X Silver Miners UCITS ETF (LON:SILV). While doing so may dilute some of the company risk associated with buying individual silver miners, this should still be considered a distinct play from investing in physical silver (either directly or via an ETC).
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