Many industrial metals including silver gained as Covid-related restrictions eased in China.
Andrey Rudakov/Bloomberg
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Silver has well outpaced gold’s gains in the past three months, and its classification as both an industrial and precious metal could put it on a path to even higher prices.
From October 31 to January 31, Comex silver futures rose nearly 25%, outpacing gold’s nearly 19% rise, “a statistically unusual amount that shows that s -the precious metals market is bullish on global economic growth in 2023,” wrote 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 mainly 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 was feared in the middle of 2022.” Colas attributes this primarily to the reopening of China and said it is “shaping up as a central investment theme” for the first months of this year.
Much of the hype surrounding China’s economic reopening focused on oil and the prospect of higher energy demand, temporarily lifting the crude to its highest prices since November.
Many industrial metals also gained as Covid-related restrictions eased in China, the world’s largest consumer of metals. Comex copper and iron ore futures each rose nearly 11% in January.
The outperformance of silver over gold in the last three months is “primarily due to real or perceived future demand for silver due to industrial use factors such as the reopening of China and other economies that have revived with mode, supply constraints, and an expected increase in overall demand,” says Michael Cuggino, president and portfolio manager of the Permanent Family of Funds Portfolio.
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 the global push towards clean energy production and related items such as electric vehicles, says Cuggino.
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 taking hold globally as emerging markets outperform, US discretionary stocks lead, and domestic commodities play like wood. strong increase on growth expectations and an increase in housing.”
Given all this, the rise for industrial metals so far this year is only partly 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, considers silver to be more of 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 are “telling a story of monetary decline.” Silver’s path is higher because the US dollar will continue to lose value, says Weiner. The prices of the monetary metals—gold and silver—are “inverse to the dollar.”
Over the past three months, both gold and silver have risen while the ICE US Dollar index, a benchmark for the international value of the dollar, has lost more than 8%.
If China continues to reopen, and there isn’t a global recession or a significant one in the US or Europe, Cuggino says supply and demand factors could be “a tailwind for prices of commodities.” Monetary policy can also become a tailwind, he says. The Federal Reserve on Wednesday gave an increase in the interest rate of a quarter point, which marked a decrease after an increase of half a point 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.”
