Silver outperformed gold last year and continues to do so. In this calendar year so far, silver prices have gained by around 9.38% in the international markets and 2.69% in the domestic markets—higher than the 7.39% and 2% surge seen in the yellow metal, respectively. Not just gold, global silver prices have outperformed other asset classes like platinum and crude oil as well on a year-to-date basis.
Silver is considered more of an industrial than precious metal, thus prices have remained higher in the past year largely driven by demand for industrial applications, especially solar panels. Also, the rally in silver prices has to do with the gain seen in industrial commodities like zinc, and for silver’s rally to sustain, buoyancy in prices of these commodities is key, said some analysts. Expectations are that further improvement in the economic scenario and return of consumption demand will keep domestic silver prices elevated.
Another indicator which shows that silver prices will continue to rally at a faster pace is the gold-silver ratio (GSR). The ratio, which compares the value of a single ounce (oz) of gold with that of silver, currently stands at 70:1. An ounce equals 28g. GSR had spiked to 83 levels in February last year. This ratio is derived by dividing the price of gold with that of silver. A higher GSR means that silver is undervalued and hence favoured.
“At the current juncture, looking at GSR, silver looks undervalued to gold by around $5/oz, so we see silver having the potential to continue to surge higher than gold. Long-term average of GSR has been at around 55:1, so gold’s current price of $1,230/oz equates to silver price of $22/oz. Going by this average, there is more room for upside in silver,” said Ravindra Rao, head (commodity research and advisory) at Anand Rathi Commodities Pvt. Ltd.
Meanwhile, data provided by Angel Broking Ltd shows that money managers continue to be bullish on silver this year as well and net long position contracts in silver as on 14 March stood at 67,836, though lower than what was seen in February, but higher than at the beginning of the year.
Since silver prices derive support from base metals, a dampener to this rally could come from China, which is the largest consumer of base metals. So the economic situation there will be closely watched going ahead, cautioned analysts.
But for now, given the aforementioned positive factors, some analysts are of the view that silver will continue to enjoy an edge over gold.