(Kitco News) - Gold and silver are once again breaking out. And while the yellow metal continues to attract significant attention, perhaps more focus should be placed on the white metal.
Gold is ending the week at record highs above $3,440 an ounce, while silver is making a run toward $40 an ounce.
Spot silver last traded at $39.72 an ounce, up more than 2% for the week. This would mark silver’s highest weekly close since August 2011.
Last week, we highlighted game-changing demand for gold after Harvard’s endowment fund established a sizable position in SPDR Gold Shares (NYSE: GLD), the world’s largest gold-backed ETF.
However, that wasn’t the only major precious metals purchase made during the second quarter. A 13F filing from the Saudi Central Bank shows it invested $30.5 million in iShares Silver Trust (NYSE: SLV) and nearly $10 million in the Global X Silver Miners ETF (NYSE: SIL).
There is no question that this is bullish for silver, but important context is needed. This is not a central bank buying an ETF to remonetize the metal. The Saudi Central Bank also manages the nation’s sovereign wealth fund, and according to some analysts, it is more likely that the investments were made for that purpose.
Although Saudi Arabia’s investment in silver is small compared to its exposure in the tech sector, a growing chorus of analysts argues this demonstrates the metal's investment value—positioning it as more than just a play on industrial growth.
Analysts note that silver’s appeal lies in its relative value to gold. Although the gold/silver ratio has dropped sharply from its April highs above 104, it remains elevated at more than 86. Historically, the ratio has averaged between 50 and 60.
The big disadvantage for silver has been its lack of institutional interest. When funds look to invest in a safe-haven asset, they traditionally turn to gold—the monetary metal of choice for central banks.
The challenge with silver is that its market is only about half the size of gold’s, making it far more volatile. Silver’s investment strength has traditionally come from retail investors, who can’t afford to spend $3,500 on a one-ounce gold coin.
The fact that a sovereign wealth fund now sees value in silver could be a game-changer for the precious metal.
