Silver has been dubbed the ‘devil’s metal’ and likened to ‘gold on steroids’ because of its vastly more volatile price pattern vis-à-vis gold, with which it is inextricably linked. Indeed the prices of all the so-called precious metals tend to be linked to gold’s price performance although their fundamentals suggest that this should not be the case and, like silver, industrial supply/demand factors should be the main price drivers..

Over the past two years with gold in decline, silver has thus fared even worse, it tending to underperform gold on the downside and outperform on the up. A much followed measure of this is the gold:silver ratio which over the past few years has varied from around 35 to 70 and, at the time of writing is sitting at just over 70 – the worst level (for the silver investor that is) for  4 years.

In truth silver should be ranked as an industrial metal. Industrial usage in all its forms (including jewellery) accounts for up to around 75% of global silver demand. Its principal usage nowadays is as an industrial metal employed largely in electronics, photography, solar panels and in the medical and environmental sectors as a biocide (together around 50%) and in jewellery and silverware a further 20%. While many of silver’s properties in the industrial sphere parallel those of gold its much lower price makes it far more attractive as an industrial metal.

David Fuller's view

Historically, silver can stay in a supply/demand deficit for a long time before it attracts serious investment interest. That is the current situation because the table from Metals Focus in this article shows that silver has been in deficit for nearly three years.  This will almost certainly continue next year because the lower price for silver (10-year weekly & 5-year weekly) should curb supply and may also increase demand.

However, silver has been generally out of favour since its accelerated peak in April 2011.  Moreover, the commodity sector is being shunned because of slow GDP growth and deflation concerns.  Additionally, investors are still fanning the dying embers of one of the greatest bull markets for government bonds throughout history.  They have also been enjoying a strong bull trend in most stock markets for the last five and a half years, although what could easily be a significant medium-term correction is now underway.  These factors could hasten a reassessment of silver’s appeal as a hedge investment.   

Note on Eoin’s review of Autonomies below.  This diversified group of multinational sector leaders contains many of the world’s most successful and established companies.  As an investment class, many of the Autonomies have been among this service’s favourites over the last five and a half years.  However, to state the obvious, valuations and price action are always important in the assessment of even the most noteworthy of investment grade stocks.  Price action is temporarily deteriorating for many Autonomies and this should lead to better buying opportunities over the medium term.