Silver and Golden Lining: Shining Insights into Investment, Demand, and Market Potential
Brandon Green

Silver and Gold have been on a wild ride, and it’s not stopping anytime soon. Let’s dive into why these shiny metals are becoming a favorite for investors.

Silver and Gold as Inflation Hedges

Silver has long been valued by investors for its ability to protect against inflation, and gold has also played a similar role. In times of rising prices, both metals have proven to be among the best assets to hold. Looking at historical data from the 1970s through to June 2024, silver has delivered average gains of more than 17% in years when consumer price inflation was at least 3%. This is significantly higher than the average increase in gold prices, which stood at around 14.2%, and well above the average inflation rate itself, which was 5.7%. This makes both silver and gold powerful tools for preserving purchasing power in an inflationary environment.

The reason silver performs so well during high inflation periods is due to its dual role as both a precious metal and an industrial metal. This dual nature means that demand for silver remains strong, even when inflation is high. Industrial applications, such as in electronics and solar energy, continue to drive demand for silver, supporting its price. Gold, while not having the same industrial demand, benefits from its status as a safe-haven asset, attracting investors during economic uncertainty and inflation. With the likelihood of above-average inflation in the coming decade, now might be a great time to consider adding both silver and gold to your investment portfolio. Their track records suggest they could be effective hedges against rising prices.

Industrial Demand is Soaring

Silver is not just a shiny metal; it’s a critical component in various industries. Recent trends indicate that industrial demand for silver is set to keep growing. Silver is used in a wide range of industries. It plays a crucial role in electronics, medicine, water purification, and even in making cars. One of the fastest-growing uses for silver is in the photovoltaic industry, which produces solar panels. In 2015, the photovoltaic sector used just over 50 million ounces of silver. By 2023, this had soared to 194 million ounces, driven by the global push towards renewable energy.

The demand for silver in solar panels is expected to grow even more in 2024, potentially reaching 232 million ounces. This is almost a 300% increase from 2015 levels. The growing focus on renewable energy means that the demand for silver in this sector is unlikely to decrease anytime soon. While demand is rising, silver production has been declining. Since peaking in 2016, global silver production has fallen by 8%, from almost 900 million ounces to 831 million ounces by the end of 2023. This supply-demand imbalance is likely to keep silver prices strong in the future.

Bull Market Potential for Silver and Gold

Silver has a history of outperforming gold in bull markets, making it an attractive option for investors looking for high returns. Looking at the five largest precious metal bull markets of the last five decades, silver has consistently outperformed gold. For example, during the bull market from June 1973 to December 1979, gold prices rose by 325%, while silver prices skyrocketed by 1108%. On average, in these bull markets, silver has returned almost 400%, compared to gold’s 114%.

Since March 2020, silver has seen a rise of 111%, compared to gold’s 45%. This outperformance suggests that silver still has significant potential for growth. If the current trend continues, silver could see even higher returns in the coming years. The Gold to Silver Ratio (GSR) is another indicator that suggests silver is undervalued. As of June 2024, the GSR was 75, which is significantly higher than the long-term average of just below 60. Historically, a high GSR indicates that silver is cheap relative to gold, suggesting potential for substantial outperformance by silver in the future.

So, there you have it. Silver is shining brighter than ever, and gold continues to hold its luster. The market is being driven by a mix of central bank purchases, speculative trading, and unique market dynamics. Whether you’re a seasoned investor or just getting started, keep your eyes peeled—this gold and silver rush is far from over.

Brandon Green leads Sales and Business Development for Neptune-GBX as a Consulting Advisor. Prior to joining Neptune in 2023, Brandon’s experience spanned multiple industries. Several notable experiences included: Sun Life Global Investments, where he wholesaled mutual funds and annuities to advisors; Sprott Money, a physical bullion broker owned by Eric Sprott of Sprott Asset Management; and Strategic Wealth Preservation (Cayman), where he managed sales, products, and trading. Brandon also holds the Chartered Investment Manager (CIM®) designation.

 

 

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