Gold and silver prices hit new highs in December in response to a perfect storm of economic stress and geopolitical tensions. Gold (GC=F) jumped to a record high of $4,480.60 an ounce on Monday, up more than 71% over the past year. However, silver futures have shown stronger gains so far this year, outpacing gold prices.
Silver prices (SI=F) rose more than 2% to a record $69.09 on Monday, rising 137% since the beginning of the year and setting a new all-time high for the precious metal.
Experts say this may have something to do with the unique relationship between the two metals.
“Historically, during precious metals bull markets, silver lags behind gold and will then experience huge gains, as we’ve seen [Monday]Steven Orrell, vice president and portfolio manager at Orrell Capital Management and OCM Gold Fund, said, “Silver has been lagging gold over the past five years until it surged last month.” Considering the historic performance gold has experienced this year, its connection to gold as a precious metal is undoubtedly a driving factor. “
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While both metals are surging in price, silver is quickly outperforming gold. Looking at the gold-to-silver ratio, which is the amount of silver required to equal the price of one ounce of gold, the gap has narrowed quite a bit. In April this year, the ratio was 104 to 1. Today, the ratio is much smaller, 64 to 1.
Experts attribute the reason why silver prices exceed gold prices to several underlying factors.
“On the investment side, as inflation expectations rise, more people are likely to purchase silver alongside their gold purchases. Silver is also known as the ‘poor man’s gold’ because despite the huge price and scarcity differences, silver is a cheaper way to gain exposure to precious metals and obtain more physical metals,” Orrell said. “As interest rates come down, investors may also look to silver as a way to play an industrial angle, as they expect companies to be able to fund more projects that require silver’s conductive properties.”
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Investors often turn to alternative investments such as gold, silver and palladium as a “hedge” against inflation and other economic uncertainties. These “safe-haven” assets can help investors diversify their portfolios when markets are volatile because they react differently to economic conditions than stocks and bonds.
Silver is slightly different from gold in that it has both investment and industrial uses, such as electronics and solar panels, which can make silver prices more volatile than gold prices. Silver is also less liquid than gold, meaning gold is easier to sell for cash.
You can invest in precious metals in a few different ways. This includes digital investments in the form of precious metals basket funds, ETFs, futures contracts and mining stocks.
Of course, you can also invest in physical assets such as jewellery, gold bars and coins – although holding a physical asset means you need to think about how to store it safely.
Ultimately, before deciding to invest in any new asset, consider your investment goals. If your goal is to diversify your portfolio or take advantage of today’s highs, it might be worth considering. However, it is important to weigh your options carefully, understand the risks of investing for short-term gains, and invest only what you can afford to lose.
Read more: Gold alternative? How to invest in silver, platinum and palladium.
