EconomistSafe-haven demand and solar panels have sent its price soaring
It is a fabulous time to be a gold bug. Not long ago, outing yourself as one was a good way of getting people to back away from you at an investment conference. The popular image was of someone in possession of their own electricity generator, stacks of water-purification tablets and several years’ supply of tinned food. Now it just features a shrewd investor. Since the start of 2023 the shiniest asset’s price has soared by nearly 60% in dollars. That is more than any of the world’s leading share indices—including, after a turbulent couple of weeks, America’s S&P 500.
Yet the sweetest vindication goes to fans of another precious metal. Even gold enthusiasts tend to view an ardent interest in silver as somewhat eccentric. To traders it is the “poor man’s gold” or “the devil’s metal”. For years those nicknames were justified by silver’s lacklustre returns and the wild ride its price took along the way. The devil’s metal is still not for the faint-hearted. But it has almost kept pace with gold over the past year and has outperformed it over the past five. With investment flows now following returns, a once-niche asset is inching towards the mainstream.
Logic suggests that silver’s price should move similarly to gold’s. It, too, is rare, pretty and inert, and so has been used to forge jewellery and coins for millennia. This long-established role as a store of value lends it “safe-haven” appeal when investors are nervous. As with gold, the fixed amount of silver in the Earth’s crust ought also to make it a good hedge against inflation. Sure enough, both metals’ recent rallies came as investors fretted over geopolitical chaos and persistently rising prices. In doing so they overcame another common tendency, for their prices to fall when real interest rates rise and vice versa, since they generate no income.
So much for theory. In practice, different levels of mining supply and industrial demand ensure that the silver-to-gold price ratio is changing all the time. Over the long term, that has led to decades of disappointment for silverites. For most of the 1970s you would have needed to sell 30 to 40 ounces of silver to buy one of gold. Today it would be more like 90.