Silver has been outperforming gold this year - and may rise to its own record highs

By Myra P. Saefong

Silver has climbed 29% this year, while gold is up about 26%

Gold, with its rise to record highs this year, deserves attention - but so does its sister metal, silver, which has outperformed the yellow metal so far this year and may be gearing up for a significant rally that lifts prices toward all-time highs.

"The energy of investors and consumers in gold has started to spill over into silver," said Michael Cuggino, president and portfolio manager of the Permanent Portfolio Family of Funds. "Combined with the macro backstory of declining interest rates, global uncertainty and a weakening U.S. dollar, the environment is bullish for both metals," he said, but silver likely "has more aggressive price action at this time."

Gold futures for December delivery (GC00) (GCZ24) touched a fresh record-high intraday level of $2,617.40 an ounce on Comex Monday, after posting an all-time high settlement of $2,610.70 on Friday - their 34th record-high settlement of the year. As of Monday, gold was trading 25.9% higher year to date, according to Dow Jones Market Data.

The December contract for silver (SI00) (SIZ24), meanwhile, settled Monday at $31.14 an ounce, far from the record-high settlement price near $50 an ounce from 2011. Still, prices, based on the most-active contract, have seen an impressive 29.3% rise year to date.

"For all the attention on gold this year, silver has been the better performer," Hamad Hussain, assistant climate and commodities economist at Capital Economics, wrote in a note late last week. "Some of the tailwinds that have boosted the gold price, like lower Treasury yields and a weaker dollar, have also supported silver in recent months."

Silver, like gold, has also benefited from a spike in demand from China, he said.

"Whilst some of this will be consumer and investment demand, silver's use in the production of solar panels, which has expanded rapidly in China, means that industrial demand also played a key role in driving prices higher," Hussain said.

He pointed out that solar-photovoltaic-related demand for silver made up around 15% of total demand for the metal in 2023. A photovoltaic cell converts light energy into electricity.

The global market supply deficit for silver stood at 184.3 million ounces, according to the World Silver Survey 2024 from the Silver Institute and Metals Focus. That deficit is down by 30% from last year's "likely all-time high," the report said, but was still one of the largest figures on record.

Hussain said that given silver's tendency to move in tandem with gold, and Capital Economics' view that gold prices will be higher by the end of next year, "silver prices are likely to rise, too."

Even so, looking ahead, he said weak industrial demand may limit gains in silver prices. Growth is China is likely to slow next year, weighing on industrial-metals prices, including silver, he said.

China's solar-industry association has called for greater consolidation in the industry given financial pressures facing solar manufacturers, and that may slow the pace of growth in silver demand from the solar sector in the near term, Hussain said.

That said, Capital Economics believes that silver prices are "unlikely to rise as strongly as the 10% increase we expect in gold prices between now and end-2025," he said.

Permanent Portfolio Family of Funds' Cuggino, however, said he expects silver to continue to outperform gold, because the price movement for silver has "yet to break out like gold has."

Silver is in the middle of a significant rally, he said. When asked what would need to happen for prices to rise toward record-high price levels, he said we're "already seeing" those factors in the market.

Most-active silver futures haven't touched all-time highs in more than 13 years. They traded as high as $49.82 on April 25, 2011.

"When you combine the current monetary climate with the fact that silver supply is not keeping up with demand, you get a very solid base of support in the high $20s per ounce and a likelihood of breaking out and holding a price in the $30 per ounce range in the next couple of years," Cuggino said.

Economic activity is another factor to consider, and silver performs pretty well during recessionary periods, he said. "While a recession would be a negative for industrial demand, the impact on pricing would likely be offset by silver's relative value versus declining real interest rates as the [Federal Reserve] cuts short-term rates."

The U.S. central bank is expected to announce a reduction in interest rates Wednesday, which may be the first in a series of cuts that could boost the economy and act as an insurance policy against recession.

If you are a silver trader, "you may want to wait for a pullback towards the mid-$20s per ounce, but for a long-term investor, valuations are reasonable given the likely longer-term outperformance of the metal," Cuggino said.

-Myra P. Saefong

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09-17-24 0700ET

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