Many industrial metals including silver gained as Covid-related restrictions eased in China.
Andrey Rudakov/Bloomberg
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Silver has greatly outpaced gold’s gains over the past three months, and its classification as an industrial and precious metal may put it on a path to even higher prices.
From Oct. 31 to Jan. 31, Comex silver futures rose nearly 25%, outpacing gold’s rise of nearly 19%, a “statistically unusual amount that shows the precious metals market is bullish on global economic growth this year 2023,” writes Nicholas Colas, Co. -Founder of DataTrek Research, in a January 25 report.
He pointed out that silver is primarily an industrial metal, while gold is primarily used as an investment and for jewelry – so the better performance for silver prices supports the idea that the “global economy is in better shape than feared in mid-2022. ” Colas attributed this mainly to China’s opening up and said it was “forming as a central investment theme” for the first few months of this year.
Much of the hype over China’s economic reopening focused on oil and prospects for higher energy demand, temporarily lifting crude to its highest prices since November.
Many industrial metals also gained as Covid-related restrictions eased in China, the world’s largest metal consumer. Copper and iron ore futures on Comex each rose nearly 11% in January.
Silver’s outperformance over gold in the past three months is “primarily due to real or perceived future demand for silver due to industrial use factors such as the opening of China and other slowly awakening economies, supply constraints, and expected increase in overall demand,” it says. Michael Cuggino, President and Portfolio Manager of the Permanent Portfolio Family of Funds.
But that is 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 global pressure on 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 a “broad risk-on sentiment taking place globally as emerging markets review, US discretionary stocks lead, and domestic commodities play out as Wood flood on growth expectations and a housing pickup.
For all that, the move in industrial metals so far this year is only partially attributable to China’s recovery, he says.
The value of silver as a precious metal is also likely to support prices. Comex silver futures settled at $23.609 an ounce on February 1.
Keith Weiner, founder and CEO of Monetary Metals, views silver as mostly a monetary rather than an industrial metal.
He believes that the price of silver correlates better with gold than with copper – and gold and silver “tell a story of monetary 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.”
Over the past three months, both gold and silver have gained, while the ICE US Dollar Index, a benchmark for the international value of the dollar, has lost over 8%.
If China continues to reopen, and there is no global recession or a significant one in the United States or Europe, Cuggino says that supply-and-demand factors could be a “headwind to commodity prices.” Monetary policy can also be a headwind, he says. The Federal Reserve on Wednesday delivered a quarter-point interest rate hike, marking an extension after a half-point increase in December.
With the right mix of factors, silver could go much higher, “easily into the $30s,” Cuggino says, but also “back to the teens if a significant global or U.S. recession occurs.”
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