I have been looking at an entry point to buy silver over the past few months, but a dip has not really come. Indeed, the metal has soared recently, handily outperforming gold. Why is this so? For a long time, the gold/silver price ratio was historically high, so there is likely some mean reversion there. That is, gold became too costly relative to silver despite having similar attributes, so silver's price had to move up eventually. Like gold, silver is something with intrinsic value unlike paper money or even virtual currencies. So there's some of that consideration
at play:
It is hard to find an asset on more of a roll than silver. On Tuesday, silver for September delivery surged nearly 7%, the highest settlement since March 2014, and 83% above its March lows. Silver was up in the early hours of Wednesday as well. “It seems the precious metal has been caught up in the perfect
storm,” says Jeroen Blokland, senior portfolio manager at Robeco Asset
Management.
Much of what’s driving silver also is
driving gold — aggressive monetary policy financing of fiscal spending,
which limits the ability of bond yields to rise. That is sending
inflation-adjusted, or real, yields lower, which tends to boost precious
metals. In addition, silver is still cheap relative to gold by historical measures.
However, it's not probably not enough to say "silver is like gold" for an explanation. Indeed, silver has more industrial applications than gold. That said, how does this function matter when economic activity is slowing down dramatically worldwide? The emerging argument is that "green" industries rely a lot on silver, and that the current pandemic is hastening the emergence of these industries. What's more, the EU recently passing a bloc-wide stimulus measure championing investment in these industries should in theory boost silver's fortunes further:
But the latest catalyst may well be the European Union’s €750 billion recovery fund,
which not only earmarked 30% of spending on environmental initiatives
but said funding of other projects has to be in line with the Paris
climate accord. Furthermore, the possibility the EU could issue
so-called green bonds may create a safe asset, providing a reference
security for private sector green bond issuance.
“The catalyst of the recent rally, however, seems to
be the fact that the world is aiming for a ‘green’ recovery, with a
significant part of the stimulus assigned to environmentally friendly
measures,” says Blokland. “As silver has a wide range of industrial
uses, including electronics and solar panels, demand for this metal
should rise from this angle as well. We remain overweight commodities as
the outlook for both industrial and precious metals looks bright.”
For the increasingly environment-conscious like myself, this development is a welcome one. I just wish I bought some silver sooner as it races into the distance [
aargh].
