Why silver outpaced gold in the second quarter, and what’s next for the white metal
Why silver outpaced gold in the second quarter, and what’s next for the white metal
A global supply deficit and bets for rising demand for silver helped the metal outpace the gains in gold, copper and other financial assets in the second quarter — and further gains in prices for the white metal look likely, analysts said on Monday.
Silver lagged gold’s performance “pretty aggressively” over the past two years, and now the market is “beginning to embrace not only silver’s ‘precious’ qualities, but its industrial uses as well,” John Caruso, senior market strategist at RJO Futures, told MarketWatch.
Metals marked a “generally” positive second quarter, analysts at Deutsche Bank said in a note dated Monday.
The total return for silver’s spot price was at 16.7% for the period, while copper’s was at 9.6%, with both posting their strongest quarterly total return performances in six quarters, Deutsche Bank said. Gold’s 4.3% return in the second quarter, meanwhile, was its third straight quarterly gain.
Silver, which is a very good conductor of electricity, is seeing increased demand for uses in solar panels and semiconductor chips, Caruso said. There was a notable jump in solar-panel demand last year, and now demand for artificial-intelligence chips has silver “front and center from a demand perspective.”
Based on the most-active futures contracts, silver climbed by 18.6% in the second quarter, outpacing gold’s 4.5% rise and copper’s 9.6% climb, according to Dow Jones Market Data. For the first half of this year, silver futures posted a rise of 22.7%, compared with gains of 12.9% each for gold and copper futures.
Silver’s notable performance followed the metal’s recent rise to record-high prices.
On May 20, silver futures settled at $32.43 an ounce after touching a high of $32.75 on Comex, the highest settlement and intraday levels for a most-active contract since late January 2013, according to Dow Jones Market Data. In Monday dealings, the September futures contract traded at $29.54 an ounce.
Historically, silver has outpaced gold in bull markets, and a “risk mentality” in the first half of the year contributed to silver’s outperformance, said Paul Marino, chief revenue officer of GraniteShares, which runs several commodities-focused exchange-traded funds, including the GraniteShares Gold Trust
Silver, a key component in electrics, medical devices and other high-tech applications, was “potentially riding the wave higher as companies that specialize in those areas saw gains, and silver experienced a supply deficit for the fourth consecutive year,” he said.
Caruso, however, said silver’s outperformance versus gold was a “catch-up story.”
The two metals “move for identical reasons: interest-rate policy, geopolitical strife and the direction of the U.S. dollar,” he said. “We’ve seen gold really make a big push in recent years, and now I think it’s a catch-up story for silver from the perspective of a silver-to-gold ratio being lopsided.”
That ratio is around 79 ounces of silver to buy one ounce of gold currently, but the mean ratio in modern history, over about the last 100 years, is closer to 45 to 1, said Caruso.
Back in late March, a couple of months before silver reached record highs, Peter Spina, founder and president of investor websites GoldSeek.com and SilverSeek.com, told MarketWatch that from a monetary standpoint at the time, the gold-to-silver ratio of near 90 ounces — meaning it would take 90 ounces of silver to buy ounce of gold — was a “screaming buy for silver.”
In terms of copper’s underperformance versus silver, Caruso said that a drop in copper prices has more to do with a slowing outlook for the Chinese economy in the third quarter, but that “ultimately we expect copper to continue to perform well out into year-end and 2025.”
U.S. interest-rate cuts would strengthen the argument for higher silver prices, he said, while uncertainty around the upcoming U.S. presidential elections and geopolitics are also likely to be supportive for prices.