Many industrial metals including silver have gained as Covid-related restrictions eased in China.
Andrey Rudakov/Bloomberg
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Silver has significantly outpaced gold’s gains over the past three months, and its classification as an industrial and precious metal could put it on the path to even higher prices.
From Oct. 31 to Jan. 31, Comex silver futures rose nearly 25%, outpacing gold’s nearly 19% rise, “a statistically unusual number that shows the precious metals market is bullish on global economic growth in 2023,” wrote Nicholas Colas. -Founder of DataTrek Research, in a January 25 report.
He noted that silver is primarily an industrial metal, while gold is primarily used as an investment and for jewelry, so the outperformance of silver prices supports that “the global economy is in better shape than expected in mid-2022.” Colas attributes this mainly to China’s reopening and says it is “forming as a central investment theme” for the first few months of this year.
Much of the announcement of China’s economic reopening focused on oil and the prospect of stronger energy demand, temporarily lifting crude prices to their highest since November.
Many industrial metals have also gained as Covid-related restrictions eased in China, the world’s biggest metal consumer. Comex copper and iron ore futures rose nearly 11% in January.
Silver’s outperformance over gold over the past three months is due to “real or perceived future demand for silver due to industrial usage factors such as China and other slowly awakening economies, supply constraints and expected growth in overall demand,” he said. he says Michael Cuggino, President and Portfolio Manager of the Permanent Portfolio Family of Funds.
But that is not the whole story.
Growth in silver demand is expected to come from traditional industrial needs, such as construction and technology, but also the global push for clean energy production and goods such as electric vehicles, Cuggino says.
Michael Gayed, portfolio manager of the ATAC Fund Family and publisher of the Lead-Lag Report, noted, “Broader risk-on sentiment is taking place globally as emerging markets outperform, US discretionary stocks lead and domestic commodities as they act like wood. rising growth expectations and rising housing.”
All that said, the rise in industrial metals so far this year is only partly due 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, sees silver as mostly a cash rather than an industrial metal.
According to him, silver is better correlated with the price of gold than copper, and gold and silver are “telling the story of the decline of money”. Silver’s path is higher because the US dollar will continue to lose value, Weiner says. The prices of currency metals – gold and silver – are “the inverse of the dollar”.
Over the past three months, both gold and silver have gained, while the ICE US dollar index, a benchmark for the dollar’s international value, has lost more than 8%.
If China continues to reopen, and there is no global or significant recession in the US or Europe, Cuggino says supply and demand factors could be a “tailwind for commodity prices”. He says monetary policy can also become a tailwind. The Federal Reserve raised interest rates by a quarter point on Wednesday, marking a slowdown after a half-point increase in December.
With the right mix of factors, silver could go much higher, “easily to $30,” says Cuggino, but also “build into the teens if there’s a global recession or a major U.S. recession.”
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