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Three takeaways

  • Silver slumped early in 2020 amid concerns about the economy
  • A rebound is now underway, though silver prices are historically undervalued compared with gold
  • Exchange traded products (ETPs) can offer investors efficient access to silver

Sellers dumped silver early in 2020 but prices are rebounding sharply. As silver gains momentum it remains historically undervalued compared with gold, a potential opportunity for investors who expect the white metal to play catch-up.

Like gold, silver is generally viewed as a potential haven and store of value in times of market uncertainty. Even so, concerns in February and March about the impact of a global pandemic battered the white metal along with stocks and other risky assets. Silver fell 22% in the first three months of 2020 while gold rose 5%.1

Q1 2020 Gold and Siilver performance

Sources: Source: Federal Reserve Bank of St. Louis Economic Research Division (as of May 22, 2020); Silver fixing Price 12:00 noon (London time) in London Bullion Market, based in U.S. Dollars Troy ounce; Gold Fixing Price 3:00 P.M. (London time) in London Bullion Market, based in U.S. Dollars per Troy ounce,

Silver and gold prices generally move in the same direction but the significant price divergence in early 2020 is explained by silver’s links not only to jewelry and flatware but to industrial output.2 Unlike gold, silver is widely used on the factory floor, including in the production of electronics and solar equipment. Industrial fabrication accounted for 52% of silver demand in 2019, compared with 7.5% of gold demand.3

As investors confronted uncertainty in the first quarter, a historic gulf opened between silver and gold prices. The number of ounces of silver that can be purchased for each ounce of gold rose to over 100 for the first time since at least 1960.4 For comparison, the average over the past decade is around 68. Put differently, investors in 2020 paid more for gold relative to silver than at any time in modern history.

How many ounces of silver can buy one ounce of gold

Chart ounce of silver per ounce of gold

Source: World Bank (as of May 2020).

The second quarter of 2020 has been a different story. Silver prices have jumped more than 18% since April, double the magnitude of gold’s rise.5 This rebound comes as coordinated policy response is taking shape to stabilize financial markets and riskier assets including stocks march higher. The trajectory of the economic recovery can’t be known; however, relative to gold—trading near its highest level since 2012—silver appears to remain undervalued based on history.

Accessing silver with ETPs

Investors who may refocus their portfolios and believe in the historical price symmetry of precious metals might consider using exchange traded products (ETPs) for efficient access to the silver market.

ETPs provide exposure to the day-to-day movement of the price of silver bullion without the difficulty or expense associated with handling coins and bars.

Chris Dieterich
Director
ETF Strategist and Commentator
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