Silver is up over 70% in a year. Here’s why experts say it could have further to go

Bars of 100-ounce silver are stacked inside The Safe House, a vault operated by Silver Bullion Pte, in Singapore.

Nicky Loh | Bloomberg | Getty Images

It’s often overlooked in favor of its lustrous cousin gold, but the price of silver has jumped over 70% in the last year, with commodity strategists saying the rally is likely to continue as the global economy reopens.

Demand for the precious metal has shot up in the past 12 months. Silver was trading around $27 an ounce on Wednesday, a 74% rise from a year ago when the spot price was around $15.5 per ounce. In comparison, gold prices have risen 6.4% in a year.

From electronics to photography, jewelry and coins, silver is integral to numerous everyday products.

Its high electrical conductivity and durability gives it industrial and technological applications, with almost every computer, mobile phone, automobile and appliance containing silver, according to the Silver Institute. The association’s data show there has been more demand than supply of the semi-precious metal so far in 2021.

But Ole Hanson, head of Commodity Strategy at Saxo Bank, told CNBC that although around 50% of the demand for silver was industrial, the rest came from investors. Still, its uses in industry was one of the main reasons driving its recent rise in value, he said.

“Industrial demand is probably the main reason why we’ve seen silver outperform gold, as it has over the last year … part of that (rise) is definitely coming from industrial metals which have really been on a tear. If you look at copper prices, they’ve more than doubled since hitting a low-point last year,” he added.

Additional factors have also played into silver’s rise, Hanson said, such as the shift towards green technologies which have spurred a rise in demand for industrial metals such as silver which are used in solar panel production, for instance.

Watching gold

The massive amount of central bank and government stimulus over the last year has also fueled concerns around inflation, with precious metals like gold seen as a hedge against rising prices and a decrease in the value of the dollar. On Wednesday, official U.S. data surprised markets with a bigger-than-expected 4.2% rise in consumer prices in April compared a year ago.

“If gold rallies then silver tends to rally, but even stronger,” Hanson noted. “So most silver investors are probably keeping a close eye on gold prices, the level of the dollar and the level of interest rates.”

While inflation might be seen as good for these precious metals, market watchers will also be keeping an eye on any tightening of monetary policy which aims to keep price rises under control.

Silver prices remain well-below a record high in 2011 when the metal almost reached the $50 per ounce mark. However Hanson said that, long-term, the demand for silver shows no signs of waning.

“If we are serious about the green transformation then that will continue to attract demand for silver,” he noted. In the meantime, the supply of silver — usually extracted during the process of mining other metals — is likely to remain restrained.

“If it catches some decent tailwinds then it can actually run higher and faster than potentially other metals would do.” Hanson added.

Extreme bullish scenario ‘off the table’ for now

Silver also stands to gain from the reopening of the global economy following the coronavirus pandemic given a ramp up in industrial production as well as maintained investment demand, according to Max Layton, managing director of Commodities Research at Citi Global Markets.

He told CNBC on Tuesday that silver had benefited from investment demand during the pandemic, and was likely to continue to do so.

“The pandemic resulted in a major decrease in U.S. real interest rates, and a shift in allocations out of wealth and household savings into gold and silver. This more than offset the weakness in industrial consumption, and continues to do so,” he said.

However, he noted that a third wave of Covid-19, largely caused by variants, could continue to dampen industrial demand and “has taken the extreme bullish silver scenario off the table for now.” Nonetheless, Layton said there was scope for silver’s rally to continue.

“An end to de-stocking in China and India would see the silver market really pick up steam,” he said.

“The rally can last as long as the world remains concerned about the impact of Covid-19 mutating and concerned about the impact of Covid on the services industry. Both of these concerns can drive policymakers to keep real rates at low levels and can sustain investment demand at high levels.”

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