Why is the price of silver going up?
Silver investors and traders have been buying the white metal with a frenzy, with price growth outpacing that of gold, and the gold-silver ratio narrowing as a result.
A large driving force behind recent momentum is the resurgence of generalist investor interest in the sector, said Gary Wagner, editor of TheGoldForecast.com.
“The reason I believe that might have happened is one, there’s talk of scarcity, but two, the millennials, people that have put money into the U.S. equity markets that are in their thirties and forties, realize they need a safe haven asset in case there is a bubble,” Wagner said.
Silver has filled in as a safe haven asset, Wagner noted.
“Silver is a unique metal in that it’s one of the hardest ones to actually mold,” he said. “The thing about silver itself is that it has the ability to be a precious metal and at the same time is highly used in industry,” he said.
Wagner added that industrial demand is picking up, albeit at a slower pace than the rise of metals prices.
“The recovery of the pandemic right now and the economic fallout that’s going to follow is going to lag behind these move in the precious metals,” he said. “What’s most impressive to me is when you consider that in March, just a few months ago, [silver] broke below $12 an ounce…it has basically doubled in a couple of months, and that’s huge.”
Spot silver last traded at $22.59 an ounce, down 1.76% on the trading session on Thursday.
On gold, Wagner maintains a constructive stance, noting that it’s only a matter of time before the price takes out all-time highs in U.S. dollar terms.
Much of this rally in gold and silver was driven by institutional investors.
“If you look at the commitment of traders report, even though it lags behind a week, what I’ve been noticing over the last three reports is a massive buildup of long positions by money managers and hedge funds, so these aren’t the individuals going in and speculating,” he said. “Institutional buying of gold and silver accounts for a great percentage of the activity that we’re seeing.”
Central banks have also been buying gold, but to a lesser extent than the previous year, he added.
Wagner said that institutional investors may be preparing for rougher economic times ahead.
“We have not even begun to feel the economic fallout that will follow the pandemic when it concludes and when people tally up the massive expenditures, the money that’s been outlaid by governments, that’s got to come back somehow. The GDP [gross domestic product] itself has been contracting. Right now, we’ve got a budget deficit that’s just out of control, so these things are inflationary,” he said.