Gold and Silver ETFs Register Growth as Recession Fears Loom

Silver ETPs see sustained uptick

As gold ETFs recouped and surpassed 2021's losses during Q1, silver ETFs continued a trend of new inflows from January to March. This came after silver demand grew across all segments in 2021 for the first time since 1997.

“So far in 2022, ETP holdings have climbed again, as silver has benefited from rising safe-haven demand amid geopolitical turmoil and growing inflationary expectations,” this year's World Silver Survey reads.

“With retail investors still accounting for most of the total, the scale of liquidations has been modest, with global holdings remaining sticky and close to their record high.”

Silver’s discount (average 2021 price of US$25.14 per ounce) compared to gold (US$1,798 per ounce) made it the precious metal of choice, with demand totaling 1.05 billion ounces for the year. Metals Focus, the firm that prepares the Silver Institute's annual survey, is forecasting a 5 percent increase in silver demand this year.

Like gold, silver is poised to see increased investor appetite if a recession does materialize next year.

“Another, positive driver for silver investment and prices is the growing risk of a so-called 'policy mistake'; the risk that the Fed tightens policy too aggressively, triggering a recession,” the Silver Institute's recently released report states. “This is amplified by at least part of the current inflationary pressures being related to rising input costs, rather than elevated levels of demand.”

If rate hikes are unable to ease inflation, economies could be hit hard by the dual impact of rising prices and borrowing costs, the analysts warn. Additionally, there is the potential for a correction in equity markets.

“As asset prices are a transmission mechanism for monetary policy, this could in turn also trigger a recession,” the document reads. “The recent inversion of the US treasury yield curve is a reflection of all these concerns.”

By the end of Q4, analysts expect silver to have an annual average price of US$23.90, while ETPs are seen recording a fourth year of positive inflows totaling 25 million ounces, or 778 MT.

Similarly, gold is expected to keep its investment demand pace throughout the year.

“If the current geopolitical and high-inflation narrative lingers — making a stagflationary shock more likely — then investment demand should remain well supported,” the WGC's outlook states.

“But any resolution to the crisis and perhaps a soft economic landing amidst higher interest rates would put downward pressure on investment demand in some regions as the market resumes its focus on economic recovery and higher interest rates," it continues.

With so many unknown factors, gold could see its annual average climb as high as US$1,850 or alternatively could remain constrained at a more moderate level.