Could Silver Outperform Gold This Year?

Some of you may have been hearing about a recent surge in the price of gold.

Bullion.Directory precious metals analysis 15 March, 2024
By Isaac Nuriani
CEO at Augusta Precious Metals

Analysts universally say that part of the reason for gold’s sudden jump has been increased talk about the possibility that interest rate cuts finally could be coming. Some of the pickup in rate-cut chatter is attributed to Federal Reserve Jerome Powell’s recent appearance before Congress, during which he said that rate cuts “can and will begin” this year.[2]  

For their part, traders are betting the Fed will begin slashing in three months. CME Group’s FedWatch tool, which evaluates the probabilities of changes to the benchmark federal funds rate, currently indicates a 63% chance the Fed will pivot in June.[3] 

However, analysts are quick to point out that it’s not only growing talk of rate cuts that’s exciting gold right now. They say a wide variety of drivers are helping to push gold higher right now, including: continued high levels of central bank demand; suddenly higher demand from hedge funds; rising political and geopolitical tension; and even a surge in retail gold-buying in India, one of the world’s fastest growing economies.[4] 

In other words, gold’s most recent wave of energy appears to be very broad based and sourced in a multitude of drivers. 

It turns out, however, that gold has not been alone in its surge upward. It’s been accompanied by silver, which has moved impressively in its own right. But as is so often the case, silver’s robust performance has been overshadowed largely by gold’s reputation and prestige. 

In fact, since gold’s 6% ascent from the end of February, silver has risen even higher on a percentage basis, climbing nearly 12% (through March 15).[5] And as optimism over gold’s outlook continues to improve, it seems the outlook for silver is improving right along with it. 

Unsurprisingly, you’re not hearing about silver’s prospects as much as gold’s, largely because you generally tend not to hear about silver as much as gold. But some of the analysts who see big things in store for gold through the near future see even bigger things in store for silver. 

This week, we’re going to shine the spotlight directly on silver – a metal that has been termed gold’s “poorer cousin” – to find out why a growing number of analysts are even more enthusiastic about its 2024 prospects than those of gold. 

UBS Strategist: Possible Fed Rate Cuts Could Prompt Silver to “Really, Really Shine”

Right off the bat, one of the biggest reasons for that enthusiasm is the anticipated Federal Reserve pivot to accommodative monetary policy.

In the same way that analysts have been excited about gold’s outlook in a declining-rate environment, some of those same analysts have been equally – or more – excited about how silver may respond when rates start coming down.

Suggesting silver could “really, really shine” in a Fed pivot to accommodative monetary policy, Joni Teves, precious metals strategist at UBS, said recently, “In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold.” 

Teves added, “Silver has been underperforming gold quite a lot. So there is a lot of catching up to do and I think the move could be quite dramatic.”[6] 

To clarify, the reference to gold’s outperformance of silver is not so much applicable to the precious metals surge since the end of February, during which silver actually has outperformed gold on a percentage basis. It’s a reference to the fact that gold’s particularly impressive price resilience over the last couple of years hasn’t been matched by silver. But some analysts expect that to change relatively soon.    

Julia Du, precious metals analyst at ICBC Standard Bank, has a particularly bullish outlook on silver due to its anticipated strengthening in a widely forecast cycle of declining interest rates. 

“Projected Fed interest rate cuts may boost economic growth, increasing silver demand,” Du said recently in an analyst note. “The correlation with gold, especially when gold becomes expensive, is likely to elevate silver prices. Additionally, support from a weaker dollar due to expected lower rates and less dovish stances by the ECB (European Central Bank) and BOE (Bank of England) could help silver to touch $30 in 2024.”[7] 

However, the excitement building on behalf of silver is about more than its anticipated surge on the strength of a more metals-favorable rate climate. Just as gold also is enjoying support from fundamental drivers such as central bank demand and heighted geopolitical tension, analysts think the potential rate-generated benefit to silver could be complemented by a fundamental driver of that metal: greater industrial demand. 

Projected Jump in Industrial Demand Could Complement Silver’s Anticipated Rate-Triggered Surge

You may have heard that silver is the single best conductor of electricity.[8] What you may not know is because of that property, silver’s industrial demand makes up roughly 50% of its total demand.[9]
 
In a recent report, the Silver Institute said overall global silver demand in 2024 is forecast to reach 1.2 billion ounces, which would be the second-highest level of demand in a calendar year on record.[10] And analysts say the principal reason for that expected total demand surge is the metal’s industrial utility. 

“Stronger industrial offtake is a principal catalyst for the rising global demand for the white metal, and the sector should hit a new annual high this year,” said the institute.[11] 

Commenting on the report, Michael DiRienzo, executive director of the Silver Institute, told CNBC, “We think silver will have a terrific year, especially in terms of demand.” Like Julia Du of ICBC Standard Bank, DiRienzo is forecasting silver prices to reach as high as $30 per ounce this year, which would be a near-20% increase over present levels.[12] 

Marcus Garvey, head of commodities strategy at Macquarie Group, agrees with that outlook. Noting silver’s unique composition “as a dual precious and industrial metal,” Garvey recently said, “If we start to see global growth pick up a bit more over the course of this year — which is very much our base case — then I would expect silver to go from a relative underperformer to gold to being a relative outperformer to gold over really the third and fourth quarter of this year.”[13] 

In fact, the tendency of silver to start more slowly during precious metals bull markets and surpass gold later during the cycle has become something of a silver trademark. You’ll notice that each of the analysts cited here have referred to that behavior, either directly or by implication.  

It’s a pattern that investors would do well to understand. If they don’t, they run the risk of being among the many who look past silver entirely as gold’s initial surge dominates the spotlight. 

Let’s break it down. 

Mining Company CEO: “Silver Always Outperforms. It’s Just Late.”

As we’ve seen already, references by analysts to a possible “silver surge” in 2024 frequently are accompanied in the same breath by references to a “silver lag.”

Here’s yet another example. In remarks on silver’s outlook through the end of the year, Randy Smallwood, CEO of mining company Wheaton Precious Metals, said, “Gold will shoot up first and then you will see silver take off rapidly. And silver always outperforms. It’s just late.”[14] 

There are numerous examples of this pattern in action. 

One of the most recent – and most obvious – occurred in 2020, the year of the pandemic. Through the first six months, gold had appreciated 18% to silver’s 4% increase. However, by the time 2020 had come to an end, silver was up 47% on the year, finishing well ahead of gold’s 25% rise.[15] 

So, why does silver often seem to behave in this fashion during precious metals bull runs? 

It appears to have a great deal to do with silver’s more complex makeup as both a precious metal and industrial metal.  

Gold’s historically larger footprint in the monetary system has helped it to be viewed over time as the quintessential store of value. Silver’s profile as a “classic” monetary metal and perceived store of value is similar – but not identical. 

“Gold has traditionally played a more prominent role as a monetary reserve asset held by central banks, giving it a stronger reputation as a store of value and inflation hedge,” Michael Ashley Schulman, chief investment officer with Running Point Capital Advisors, says. “Silver, on the other hand, has had a less central role in the international monetary system. The value of silver is more subject to its use and versatility as an industrial metal.”[16] 

Consequently, those investors seeking to make a pure “store-of-value” move may consider gold before silver. “Gold investors jump the gun on buying gold at the first whiff of economic or financial market troubles,” notes CPM Group, a global commodities analytics firm.[17] As a result, many investors will come to silver later as a store-of-value asset. 

But there’s another reason why silver sometimes is prone to being a late bloomer. It has to do with the way in which declining rates eventually energize economic growth…which in turn, can intensify industrial demand for silver.  

Declining Rates Can Boost the Industrial Demand of Silver. Here’s Why. 

When interest rates finally start falling, precious metals’ first reaction is to strengthen. There are two reasons for this. 

One reason is metals’ capacity to defend portfolios against the impact of dollar weakness. Another is that non-interest-bearing assets such as gold and silver may get a closer look from investors who can’t earn as much from interest-paying alternatives. 

But with silver, there’s another benefit that can flow to it in a lower-rate environment. 

The availability of cheaper money encourages growth of the business sector. Eventually, that can result in greater industrial demand for silver. But those are circumstances that tend to develop later in the precious metals bull run, after rates actually come down, rather than earlier, when rate cuts are still at the stage of merely being anticipated. 

Still another component of silver’s potential to outperform gold is its smaller market. As mentioned, gold’s physical scarcity is greater, but silver’s far-lower price means its total market is smaller than gold’s – to a significant degree. 

Presently, the silver market, in dollar terms, is roughly 10% the size of the gold market.[18] As a result, it takes fewer dollars flowing into (and out of) silver to impact its price. Therefore, during periods when silver is in favor with investors, the price of the metal can move in a significantly outsized fashion relative to gold. 

All of this said, it remains to be seen, of course, how silver – or gold, for that matter – actually performs from here. Those investors who take it upon themselves to learn even more about silver ultimately may decide that owning some of the white metal either within or outside of a gold IRA is appropriate for them. 

But that’s not the point of our discussion this week.

It is, instead, conveying the growing expectations of some analysts for silver’s outperformance of gold in the near term and to better understand the reasons for those expectations.

To what end? Hopefully, to gain an enhanced appreciation of the multitude of asset dynamics driving – and being driven by – an economy that itself seems especially dynamic right now.

[1] CNBC.com, “Gold COMEX (Apr′24)” (accessed 3/14/24).
[2] Barron’s, “Jerome Powell Says Rate Cuts Will Begin This Year” (March 7, 2024, accessed 3/14/24).
[3] CME Group, “FedWatch Tool” (accessed 3/14/24).
[4] Neils Christensen, Kitco.com, “Gold rally could go further still after hedge funds place record bullish bets” (March 11, 2024, accessed 3/14/24); Jack Denton, MarketWatch, “Gold Keeps Hitting Records and ‘Not Everything Adds Up.’ What’s Moving Prices.” (March 7. 2024, accessed 3/14/24); Steve Goldstein, MarketWatch, “There’s one big mystery in the everything rally: gold’s record-setting ascent” (March 6, 2024, accessed 3/14/24).
[5] CNBC.com, “Silver COMEX (May′24)” (accessed 3/14/24).
[6] Lee Ying Shan, CNBC.com, “Gold prices to hit $2,200 and a ‘dramatic’ outperformance awaits silver in 2024, says UBS” (February 4, 2024, accessed 3/14/24).
[7] Neils Christensen, Kitco.com, “Gold and silver to lead 2024 with average prices to rise more than 6% – LBMA annual price forecast” (February 1, 2024, accessed 3/14/24).
[8] TampaSteel.com, “Which Metal is the Best Conductor of Electricity?” (accessed 3/14/24).
[9] Maria Smirnova, Sprott, “Silver Demand and Supply Trends to Watch” (May 26, 2022, accessed 3/14/24).
[10] Lee Ying Shan, CNBC.com, “Silver set for a ‘terrific year’ and could outperform gold to hit a 10-year high” (February 6, 2024, accessed 3/14/24).
[11] Ibid.
[12] Ibid.
[13] Sam Meredith, CNBC.com, “Gold prices could keep climbing — but analysts expect silver to steal the show before long” (March 11, 2024, accessed 3/14/24).
[14] Lee Ying Shan, “Silver set for a ‘terrific year.’”
[15] StockCharts.com (accessed 3/14/24).
[16] Matt Whittaker, U.S. News & World Report, “Should You Invest in Silver as an Inflation Hedge?” (August 24, 2023, accessed 3/14/24).
[17] CPM Group, “Silver Does Outperform Gold…Most Of The Time” (accessed 3/14/24).
[18] CompaniesMarketCap.com, “Silver’s Market Cap” (accessed 3/14/24); CompaniesMarketCap.com, “Silver’s Market Cap” (accessed 3/14/24).

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