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XAG : Why Silver can`t catch up with Gold`s Price Level

(Wed, 6 May 2020). Gold and silver are both frequently cited as having counter-riskproperties. But silver’s demand profile is skewed much more toward industrial demand.This sees it acting more like a cyclical asset than gold when times are tough. Silver prices have underperformed those of gold as the coronavirus has come to utterly dominate market sentiment.

While gold prices remain elevated, underpinned by that all-too-understandable haven bid, silver prices are well down for the year to date. Indeed, still nursing falls of around 16% they’re behaving rather more like risk-correlated equity than any sort of bet-hedging haven asset. Gold on the other hand is up by more than 10%.

The reason behind this discrepancy is that, while both gold and silver are obviously precious metals, priced by the ounce rather than the tonne, their demand profiles are really very different.

Estimates of industrial demand for silver vary, but they coalesce around the 50% level. Aside from its coveted beauty, silver is the best thermal and electrical conductor of all elemental metals. Meanwhile gold is much more obviously a financial asset, with industrial use accounting for barely 10% of buyers. It has its industrial uses too, of course, but it’s expensive and that tends to limit them.

What that means is that silver is far more vulnerable than gold to the prospect of a global recession. When growth collapses, so does that industrial demand.

 


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