While silver may not receive the same level of attention as gold, it shares many of the qualities as its golden peer and can claim a history that dates back almost as long.
As such, there is a multi-century trading performance of silver to reflect on when assessing its investment qualities over the long term. Indeed, it is this enduring appeal, as well as it being a physical asset with a finite amount of supply, that has given silver status as an asset that holds its value over time and is a hedge against inflation.
As for the investment case for silver, that can be split into two principal categories:
- first, as a safe haven asset, worth for an investor to have in their portfolios, to protect them at times of crisis;
- secondly, in contrast to gold, silver has considerable industrial demand, with the metal used in a wide range of technological applications, notably as a key component in photovoltaic cells for solar energy as well as a number of different elements of the drivetrain for electric vehicles such as Tesla.
But how has silver actually performed versus other asset classes? And is it worth investing in the metal now?
Silver performance vs stock market
Both the stock market and silver are prone to periods of high volatility that can result in sharp gains and losses over a short period of time. Silver in particular is more prone to volatility than gold due to the lower trading volumes compared with its precious metal peer, which is one of the most traded commodities in the world. As such, these comparatively lower volumes can see silver suffer much wilder moves in both directions, than the steadier performer – gold.
Yet while it shares the risk of volatility with equities, a crucial separating factor is that the main drivers for the stock market can often be met with a contrasting reaction on silver, making the metal a valuable diversification asset in any portfolio.
For example, for the US equities, a weaker US dollar typically reduces these companies’ buying power on the export market. However, for silver, which is priced in US dollars, a weaker greenback often helps boost the metal’s price.
Similarly, given silver’s perceived role as a safe haven asset, times of crisis on equity markets, when traders are seeking to take risk off the table, can be beneficial for silver.
One area where these two assets can move in tandem is an improving industrial outlook with silver benefiting from the likelihood of increased demand for the metal while the companies that make up the stock market will also rise.
While typically gold and silver move in close correlation, this industrial appeal of silver can see the close relationship between the two precious metals break down.
Silver performance in the last 10 years
Silver may have a reputation as a store of value over time but taking a snapshot of the last 10 years, dating back to 2012, holders of silver would have seen them lose money. Indeed, it was in 2011 that silver surged close to its all-time high, briefly trading above $48 an ounce, with the metal never coming close to threatening those levels since.
Silver suffered a severe plunge in its price in 2013 before then trading in a broad range of between $14 an ounce to $22 an ounce from 2014 onwards before the start of the coronavirus lockdowns in March 2020 saw it sink below $13 an ounce to its nadir of the decade.
The much-documented silver squeeze of early 2021 when the metal found itself the meme stock of the day among the Reddit community and broader retail investors pushed the price of silver above $30 an ounce for the first time since 2013. This squeeze highlighted both silver’s die-hard appeal among elements of the trading community as well as the metal’s potential volatility as it is difficult to conceive such a dramatic move being conducted by retail investors on gold.
In early 2022, silver was a beneficiary of the rush to haven assets in the wake of Russia’s invasion of Ukraine in late February with the price climbing to close to $27 an ounce. However, the change in monetary policy by central banks to a more hawkish stance in which interest rates are set to rise over the course of this year saw silver punished, due to its lack of yield. As a result, the metal plunged to below $21 an ounce before recovering in recent weeks to near $22 an ounce.
This potted history of silver’s performance highlights both the wide array of factors that can influence the price of silver as well as its volatility.
Future of silver in the next 10 years
Having endured a difficult last decade in which silver endured a rollercoaster that ultimately saw it lose value over that time period, what are the prospects for the precious metal to perform any better over the next decade?
The key element to silver’s potential performance over the next 10 years lies in its demand from the industry. 2021 was a record year for physical demand with increased buying from the electronics sectors, notably photovoltaics, helping push consumption in excess of 1 billion ounces, according to the Silver Institute.
2022 is set to see another record year with demand growth again led by photovoltaics, which is set to more than double from where it was in 2012 to about 127 million ounces.
Silver’s outlook is brightened by the fact it is used in key growth industries such as technology, solar energy and electric cars. Efforts to thrift the metal, where manufacturers try to minimise their use, have bottomed out with demand for silver now set to grow in line with the huge growth anticipated for these major sectors.
Yet silver isn’t driven by industrial demand alone, with 2022 throwing up a war in Europe and the most aggressive series of interest rate hikes by central banks seen this millennium. The reflection back on the last 10 years shows how difficult future events are to foresee. Who could have predicted the rise of meme stocks for example?
Where will silver be in 2032? In truth, no one knows. But the growth prospects of physical demand allied to a finite supply point to an asset that still has plenty of room to climb higher.
Is silver still a good investment?
Silver certainly has a role to play as a small part of an investor’s portfolio. It performs differently to other asset classes, offering diversification and its physical quality means an investor can never be left with absolutely nothing, unlike a company that goes bust for example.
Silver investors have had to endure some volatile times but its relatively low entry point, with an ounce of silver costing about $20, makes it much cheaper and easier to obtain than gold. Plus the wide range of uses for silver, in some of the most attractive industrial sectors of our time, illustrates that the metal has attractions outside of the purely investment and collector crowd.
Overall, a little exposure to silver at a time of burgeoning demand is surely worth the risk. But strap in and enjoy the often bumpy and volatile ride!
Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwashing while investing sustainably.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.
