Will Silver Outperform Gold? Part 2: In Defense of Silver

While both silver and gold are precious metals, and are often impacted by the same influences, the two metals have taken different paths in terms of their perceived value in the market.

In the first instalment of this two-part series, we examined silver’s role in the markets over the last 30 years compared to gold’s. This was done by dissecting silver’s history, the gold/silver ratio and why gold has almost always outperformed the white metal to date.

In part two, we learn why many insiders believe that silver is now prime to outperform the yellow metal and what it could mean for the white metal’s future.

Why silver may become the favored precious metal

As chatter about silver outperforming gold began to rise, David Morgan of the Morgan Report decided to do some outreach to see just how many insiders believe this could happen.

“I decided to take a survey … [I asked] in early 2018 ‘will silver outperform gold this year?’ Results — approximately 75 percent thought silver would outperform gold in 2018,” Morgan told the Investing News Network (INN).

Why do these people, as well as many others, believe that silver is on course to top its sister metal?

For starters, based on historical data, silver outperforms gold when growth and inflation rise in the US; however, when growth and inflation fall in the US, gold outperforms silver. At the moment inflation is beginning to rise, and if history repeats itself that means the price of silver should start to rise with it.

“With yields now back to levels that have been observed in the past, and inflation beginning to rise, a period of stronger growth and rising inflation could be at our doorstep. If this is the case, the price of silver is likely to outperform the price of gold,” states Treasure Coast Bullion Group.

The firm adds, “prior to 2008, the price of silver would generally begin to rise as inflation picked up and yields increased. Following the financial crisis, prices surged and then came off as both growth and inflation moderated.”

Since 2008, there has not been much inflation to speak of, and so this force has not been able to push the price of silver upward. Now that we have entered a period of time when inflation is on the table again, insiders believe that puts silver outperforming gold on the table again as well.

Adding to the notion of silver and inflation, Adrian Day of Adrian Day Asset Management told INN, “[t]raditionally, as you know, silver tends to outperform gold, particularly over short periods in a bull market. It can spike much easier than can gold. This is especially so if the precious metals rally is caused by inflation, rather than, say, geopolitical events.”

Inflation is also a major player in terms of what sustains the US dollar and devalues gold. Inflation is generally a sign of economic growth, and when the economy grows, it’s common for the US Federal Reserve to expand money supply. An extended monetary supply makes it more expensive to buy assets that are a perceived store of value, such as gold.

Another important factor that could see silver potentially outperforming gold is the white metal’s low cost and its recent spike in demand for industrial uses.

“The relatively inexpensive price of silver to gold now should support demand,” Angela Bouzanis, senior economist at FocusEconomics, told INN.

Ivan Martchev of Navellier & Associates added to that claim, stating, “[i]n my experience, when precious metals are seeing strong investor interest, silver tends to outperform gold. This is because ‘poor man’s gold,’ as silver is sometimes called, is a smaller market and therefore it is easier to move.”

Finally, the metal could fall in favor due to the recent spike in demand for its industrial uses. Bouzanis noted, “silver is also seen benefiting from healthy demand for its industrial uses, such as solar panels.”

FocusEconomics also said, “[t]he use of silver in solar photovoltaic panels has grown rapidly. Solid demand from the semi-conductor market, lifted by a strong global economy, has led to higher silver off take in electrical and electronics applications. Global supply is continuing to tighten due to lower mine supply and declining global silver scrap supply, which will exert upward pressure on prices.”

While the results may be modest at first, they remain advantageous for silver.

“Fabrication demand continues to be solid, driven by solar and the electrical components and also some other pockets of the market are showing modest but positive growth,” explained Johann Wiebe, lead metals analyst at Thomson Reuters.

Looking ahead

As a final look at how silver could find itself doing better than gold, one INN regular predicts big things.

Morgan told INN earlier this year, “I think this year silver will outperform gold. I could see a 30-percent increase in the price of silver from the bottom, and maybe something similar in gold from last year — 10 to 20 percent. Those are modest numbers relative to what gold can do.”

“But if you compound your money at 20 percent, you could make a fortune over a few years, really. I think that’s the type of environment that we’re in right now, barring any unforeseen … I hate to say it, worse scenario or geopolitical upheaval,” he added.

Do you believe that silver will outperform gold in 2018, or even the next five years? Take our survey and let us know what you think. 

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.