Can Silver Keep Pace With Gold?

April 9, 2016

 Gold’s surprising strength in price is capturing headlines, but another precious metal, silver, is chasing gold’s coattails – without the fanfare.

Silver futures are up about 8.5 percent this year, making it stand out among other commodities and financial markets. Investors snapped up coins, with U.S. Mint data showing March silver coin sales were up 17 percent over the previous year’s figure. Inflows into silver-backed exchange-traded funds witnessed their highest monthly inflow since December 2010, according to Commerzbank.

Still, gold’s 15 percent year-to-date gain outshines silver, which means the gray metal has some catching up to do if it wants to match gold’s performance. Even if silver’s price performance may not be as muscular as the yellow metal, market watchers said silver may have its own brighter outlook.

What’s ringing silver’s bell? Silver’s rise this year is its status as an alternative currency. Like gold, some investors bought silver during the uncertainty affecting global financial markets in the first quarter, says Colin Cieszynski, chief market strategist at Toronto-based CMC Markets.

With some of those concerns subsiding, silver and gold are off the highs set in March.

But unlike its wealthier cousin, silver also has a strong industrial component. It’s used in photovoltaic cells for solar panels and in some medical devices for its anti-microbial properties.

With industrial demand for commodities in general weak, this has limited silver’s 2016 rally.

“The hybrid nature of this precious metal as an alternative investment like gold and as a metal with industrial use means that silver sometimes performs better than gold and sometimes worse. This phenomenon is strengthened by the fact that the silver market is a ‘smaller’ market than the gold market, meaning that just a few transactions can lead to price volatility,” Commerzbank analysts say in a recent report.

Silver has positive supply and demand factors working in its favor for 2016, and the bank forecasts an average fourth quarter price of $17 an ounce. Silver mine supply is falling as low commodity prices caused miners to limit production of metals in general.

The supply of scrap silver, that is silver recycled from another use, also is falling.

Silver demand for use in photovoltaic cells should grow, says The Silver Institute, a silver industry based research and promotional organization. When silver prices were close to $40 an ounce several years ago, solar manufacturers looked for alternative material, but with prices now around $15 an ounce, silver use is expected to increase.

The Silver Institute forecasts silver’s use in solar energy in 2016 could surpass the record set in 2011 “as global solar panel installations are expected to grow at a high single-digit pace.”

Analysts at Macquarie Capital (Europe) Limited have a fourth-quarter silver price forecast of $16. There is the potential for silver prices to fall in the near term, they say, but silver and gold could benefit if inflation returns.

“Central banks prefer to run the risk of higher inflation than slower growth. We think this could be a surprise upside factor in 2017, and help gold and particularly silver then and in the following years,” they say.

John Butler, London-based vice president and head of wealth services for GoldMoney, says if the outlook for the global economy improves, silver could outperform gold because of its industrial role.

“Silver has weaker claims as an alternative currency, but it does better when there’s a stronger economy,” Butler says. However, if concerns about the global economy persist, it will likely lag gold.

How to invest in silver. The simplest way to invest in silver is in either silver coins or exchange-traded funds. For people who want to own coins, they also need to think about storage, such as a safety-deposit box.

To get exposure to the silver price, without the worry about storage, the biggest ETF by assets under management is iShares Silver Trust (ticker: SLV), which tracks the daily silver bullion price.

Although much of silver’s mine production comes as a by-product of gold, copper, lead and zinc production, there are a few pure-play silver mining companies.

David Morgan, an independent commodities analyst and publisher of The Morgan Report, says his two top equities picks are London-based Fresnillo, which trades on the London Stock Exchange and operates silver mines in Mexico, and Australian-based gold miner Doray Minerals, which trades on the Australian Securities Exchange. He owns stock in both companies.

“Doray is performing well and they’re a growth company. Fresnillo had very solid 2015 results, too,” he says.

Regarding silver prices, Morgan says prices long term will rise, but in the short term, he expects prices to weaken. “I think we’ll see some summer doldrums and prices to go down from here, before turning back up into year end,” he says.

Cieszynski says he’s encouraged that several of the silver-mining stocks are outpacing the rally in the metal. Top performers include Silver Wheaton Corp. (SLW), up nearly 30 percent on the year, while Pan-American Silver Corp. (PAAS) is up 60 percent and Endeavor Silver Corp. (EXK) is up 70 percent.

“That’s always important. I look at the stocks as a leading indicator because any time you do a forecast for a mining stock it includes a forecast of the production as well as the price,” Cieszynski says. “If the stocks are outpacing the metal price then people are figuring that production is going to come back around or the price is going to go up.”

David Morgan is a precious metals aficionado armed with degrees in finance and economics as well as engineering, he created the website and originated The Morgan Report, a monthly that covers economic news, overall financial health of the global economy, currency problems, and the key reasons for investing in precious metals.

As publisher of The Morgan Report, he has appeared on CNBC, Fox Business, and BNN in Canada. He has been interviewed by The Wall Street Journal, Futures Magazine, The Gold Report and numerous other publications. If there is only one thing to teach you about this silver bull market it is this… 90% of the move comes in the last 10% of the time! Where will you be when this happens?

David Morgan ( is a widely recognized analyst in the precious metals industry; he consults for hedge funds, high net-worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, the author of Get the Skinny on Silver Investing, and a featured speaker at investment conferences in North America, Europe and Asia. You can receive a free 30 day trial subscription here

1 cubic foot of silver weighs approx 655 pounds whereas 1 cubic foot of gold weighs more than half a ton.