- Date : 07/07/2023
- Read: 4 mins
Silver, also known as the 'poor man's gold', has been making headlines in the investor community. With predictions of reaching its nine-year high and outperforming gold, precious metal has become a popular topic. Let's delve deeper to understand it better.
- Silver is a dual-nature precious metal, which has monetary significance as well as industrial usage.
- While silver may have given good returns in the short term, it has always been outshone by gold in the long run.
Why is there an abrupt rise in silver prices?
There is a current buzz surrounding silver in the investor community. Experts predict that silver is set to outperform gold and touch its nine-year high in 2023, reaching a whopping Rs. 90,000 per kg.
Silver is a precious metal with dual significance. It's not only used as a store of value, but is also a crucial component in various industrial applications. However, despite being more abundant than gold historically, silver is now facing a shortage.
"There is a shortage of physical stocks of silver in New York and London. Silver will suffer a deficit of 100 million ounces next five years as industrial demand keeps on increasing," Nicky Shiels, Head of Metals Strategy, at the New York-based precious metals company, MKS PAMP.
Mine production peaked in 2016 when it produced 900 million ounces of silver, but it has been declining since then. In 2022, silver production fell to 843.2 million ounces, a decrease of 53.2 million ounces, as reported by the trade group The Silver Institute.
Silver is widely used and approximately 50% of the demand comes directly from the industrial sector. It is used in manufacturing automobiles, solar panels, jewellery, and electronics. As the global economy recovers from the pandemic-induced downturn, the demand for these goods is increasing, which further exacerbates the already-strained supply chain. Consequently, the price of silver is rising.
Another reason for the rise in the price of silver is due the rising shift towards green energy production policies worldwide. As the world strives to combat global warming, countries are increasingly turning to solar energy and other sustainable options. This has boosted the demand for silver, which is used in the production of solar panels and other green technologies.
Historical Performance of Silver
Historically, silver has been a volatile asset. Its performance is greatly dependent on industrial production, which means that every recession could potentially cause a massive fall in prices.
In fact, history has shown that silver prices can be incredibly unpredictable. Take, for example, the early 2008 peak, where silver prices spiked by a staggering 79%. However, this was quickly followed by a 58% fall during the first phase of the financial crisis later that year.
Then, in 2011, silver prices spiked by a jaw-dropping 448%, touching an all-time high of $48.7. However, it fell by 46% by the end of that year. The Dot-com bubble burst is another example which caused silver prices to plunge by 25%.
Has silver replaced gold?
Before jumping to conclusions, let's first understand why investors choose to invest in gold and other precious metals. As an investor, you must know the significance of portfolio diversification and gold has a history of thousands of years of stability and scarcity.
Investors turn to gold as a hedge against inflation and risk absorption. Unlike other assets, gold prices neither rise abruptly nor fall sharply. Compared to silver, gold is much more stable.
Looking at the data we used in "Historical Performance of Silver," when silver prices fell by 58%, gold prices only came down by only 30%. Even when silver fell 46% in 2011 and 25% during the Dot-com bubble burst, gold prices only fell by 19% and 17%, respectively.
While silver may have given good returns in the short term, it has always been outshone by gold in the long run. Gold has consistently proven to be the safest investment option and a hedge against risk and inflation. With such a solid history of stability, it's clear that gold isn't going anywhere anytime soon.