Many industrial metals, including silver, gained as Covid-related restrictions eased in China.
Andrej Rudakov/Bloomberg
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Silver has significantly outperformed gold’s gains over the past three months, and its classification as both an industrial and a precious metal may put it on a path to even higher prices.
From Oct. 31 to Jan. 31, Comex silver futures climbed nearly 25%, outpacing gold’s nearly 19% gain, a “statistically unusual amount that shows the precious metals market is on the upswing of global economic growth in 2023,” wrote Nicholas Colas, co. -founder of DataTrek Research in a Jan. 25 report.
He pointed out that silver is primarily an industrial metal, while gold is mainly used as an investment and for jewelry – so the outperformance in silver prices supports the idea that “the global economy is in better shape than expected in mid-2022.” Colas attributed this primarily to China’s reopening and said it was “emerging as a central investment theme” for the first months of this year.
Much of the hype surrounding the reopening of China’s economy has focused on oil and the prospect of higher energy demand, temporarily lifting oil prices to their highest since November.
Many industrial metals also gained as Covid-related restrictions eased in China, the world’s biggest metal consumer. Comex copper and iron ore futures rose nearly 11% in January.
Silver’s outperformance against gold over the past three months is “primarily due to actual or anticipated future demand for silver due to industrial use factors such as the reopening of China and other slowly awakening economies, supply constraints and an expected increase in overall demand,” he says . Michael Cuggino, President and Portfolio Manager of the Permanent Portfolio Family of Funds.
But that’s not the whole story.
The increase in demand for silver is expected to come not only from conventional industrial needs such as construction and technology, but also from the global push for clean energy production and related goods such as electric vehicles, Cuggino says.
Michael Gayed, portfolio manager of the ATAC Fund Family and publisher of the Lead-Lag Report, points out that there is also “broader risk sentiment playing out globally as emerging markets outperform, led by US discretionary stocks and domestic commodities play like wood. an increase in growth expectations and a recovery in housing.”
Given all that, industrial metals’ upward move so far this year can only be partially attributed to China’s recovery, he says.
The value of silver as a precious metal will probably support the price. Comex silver futures settled at $23.609 an ounce on February 1.
Keith Weiner, founder and CEO of Monetary Metals, considers silver more of a monetary than an industrial metal.
He believes the price of silver correlates better with gold than with copper – and gold and silver are “telling a story of currency decline.” Silver’s path is higher as the US dollar continues to lose value, Weiner says. The prices of monetary metals – gold and silver – are “inverse to the dollar”.
Both gold and silver have gained over the past three months, while the ICE US Dollar Index, a benchmark for the dollar’s international value, has lost more than 8%.
If China continues to reopen and there isn’t a global recession or a significant recession in the U.S. or Europe, Cuggino says supply and demand factors could “inflame commodity prices.” Monetary policy can also become a tailwind, he says. The Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday, slowing after a half-point increase in December.
With the right combination of factors, silver could go much higher, “easily into the $30s,” Cuggino says, but also “return to the teens if there’s a significant global or U.S. recession.”
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