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Global efforts to restart economies following coronavirus lockdowns are expected to boost silver demand, making prices of the metal, which slipped to an all-time low relative to gold during the crisis, liable for a stronger rebound.
The gold-to-silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, hit a record 124 in March. By Thursday it had retreated to 98.6, but was still well above the 20-year average of 65 calculated by Reuters.
Silver tends to underperform during recessions and outperform when economies expand
Silver, which is used in items like microchips and solar panels, has more industrial applications than gold, and so tends to underperform during recessions and outperform when economies expand.
With economies starting to reopen but interest rates still low – supporting non-yielding precious metals – silver is seen by some as attractive relative to gold.
“We’ve been seeing a lot of interest in silver, and a lot of the investment community has been rallying around the metal looking for an alternative to gold,” said Greg Taylor, chief investment officer at Purpose Investments.
As well as hopes for a demand recovery, supply disruptions due to lockdowns in major silver producers like Mexico and Peru are also supportive, analysts said.
Recent investor buying trends have also favoured silver. Holdings of silver-backed exchange-traded funds (ETFs) have grown at more than twice the rate of gold ETFs over the past month, Refinitiv data shows.
“Given that we believe western silver accumulation through ETFs will continue, and that we also believe the world economy will see a recovery, we believe silver will incorporate both these positive forces in the next six months,” said Leigh Goehring, managing partner at natural resource investors Goehring & Rozencwajg.
“In other words, silver should go up more than gold.” However, some warn that much will depend on how far industrial silver demand can offset lower buying of all precious metals as demand for safe stores of value dwindles.
“We suspect that any (marginal) silver price gains accrued from industrial demand recovering will be more than offset by falling safe-haven investment in the second half,” said Capital Economics economist James O’Rourke.
While silver does have the potential to claw back further ground relative to gold, its relative value is likely to remain below historic averages, analysts say.
“Assuming the global economy has already passed its recession trough… we see some catch-up potential for silver, on an absolute basis as well as relative to gold,” Julius Baer analyst Carsten Menke said.
“Eventually, we believe the gold/silver ratio should settle around 85.”
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