Is Silver Finally in a Better Position to Outperform Gold?

Published on: Apr 3, 2024
Author: Caroline Kong

As the price of gold hit an all-time high of $2,300 per ounce, silver is finally seeing a long-awaited rebound. Compared to the 1.5% rise in the price of gold, the COMEX May silver futures contract jumped more than 4% on Wednesday (3 April) to $27.06 per ounce, hitting a two-year high.

In fact, this wave of silver catching up has already caught the attention of traders and hedge funds. With gold prices continuously hitting historic highs, hedge funds are reallocating a portion of the funds waiting to enter gold into increasing net long positions in silver.

Mobeen Tahir, the research director of the ETF-focused asset management company WisdomTree, indicated that silver seems to be preparing to outperform gold in its cyclical trend. He pointed out that silver often competes with gold, and in recent weeks, this competition seems to be gaining momentum, tempting investors to take actions.

Tahir noted that historically, the price ratio of gold to silver often rises followed by a significant correction. When silver catches up to gold, it often leaves gold behind for a long time. As of the end of March, the gold-to-silver ratio still lingers around 89, far above the historical average level of around 52.

Another factor supporting the silver price breakthrough is the recent improvement in investor sentiment towards silver, as evidenced by the net long positions in silver futures. In early 2020, after speculative positions peaked, silver prices experienced a strong rebound.

Tahir also emphasized several structural factors driving silver prices, especially the promising role of silver in energy transition. He pointed out that the global adoption of electric vehicles is a very positive sign for many metals, including silver. Additionally, the commitments of countries worldwide to increase green energy, including solar power generation, will also increase silver demand in the coming years.

Nicky Shiels, the Head of Metal Strategy at MKS PAMP, stated that the production in the world’s two major silver-producing countries, Mexico and Peru, has dropped to the lowest point in 14 years.

Compared to 2016, production in Mexico and Peru has decreased by 25%, leading to increased supply pressure in the silver market. If there is a significant resurgence in silver demand, the price of silver could quickly move away from the multi-year bottom of the mid $20s.

If you’re interested in investing in silver, you might want to keep an eye on this company: Silver Storm Mining Ltd. (TSXV:SVRS). Silver Storm Mining Ltd. holds advanced-stage silver projects located in Durango, Mexico. Golden Tag recently completed the acquisition of 100% of the La Parrilla Silver Mine Complex, a prolific operation which is comprised of a 2,000 tpd mill as well as five underground mines and an open pit that collectively produced 34.3 million silver-equivalent ounces between 2005 and 2019. The Company also holds a 100% interest in the San Diego Project, which is among the largest undeveloped silver assets in Mexico.

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