The casual reader of financial news is probably aware that gold’s glitter is shining brightly this year on the heels of a 60%-plus year-to-date rally. But the sparkle looks dull next to silver’s rise.

Using a set of ETFs to track the two metals highlights that silver has surged nearly 119% this year, based on the iShares Silver Trust (SLV). The stellar increase is nearly twice the gain for gold, based on SPDR Gold Shares (GLD).
 

What’s driving silver’s upside explosion? A mix of factors, according to analysts, including stockpiling related to the growing demand for the metal in electronics, alternative energy applications, electric vehicles and artificial intelligence and data centers.

A report published this week by Oxford Economics and the Silver Institute, an industry group, outlined a bullish case for the metal’s industrial demand outlook:

“Silver is poised to play a pivotal “next generation metal” role across industries critical to the green energy transition and digital transformation over the coming decade,” the report advised. “As digitalization and AI adoption accelerate, so too does the demand for critical materials involved in their applications— silver a critical one among them.” A press release for the report predicts: “Sectors such as solar energy (PV), automotive electric vehicles (EVs) and their infrastructure, and data centers and artificial intelligence (AI) will drive industrial demand higher through 2030.”

Adding to silver’s allure is the supply shortage that’s prevailed in recent years. “We have a market that has been undersupplied for the past five years, and we still have regional stocks dislocation,” Suki Cooper, analyst at Standard Chartered, observes.

Monetary drivers are also said to be part of the bullish aura. Although silver plays second fiddle to gold as a perceived “safe haven” asset, it’s a facet that’s resonating lately for both metals. Adding to momentum on this front is the Federal Reserve’s third cut in interest rates this week, which lessens the opportunity cost for holding precious metals by reducing the attractiveness of fixed-income securities via lower yields.

Some analysts are speculating that silver could rally to a record $100 an ounce in the months and years ahead. Perhaps, but history reminds that silver, which is essentially an industrial metal, is no stranger to booms and busts, driven in part by the economic cycle. Reviewing silver’s price chart since 1990 reminds that spectacular rallies can be followed by equally epic declines.
 

The cycle is very much in the boom phase. Estimating the peak for silver is probably a function of when supply catches up with demand.

“While $100 silver is undoubtedly possible, commodity markets tend to rise to levels where cyclicality causes production to increase, inventories to build, and consumers to seek alternatives,” notes Andrew Hecht, a commodities trader and analyst.

Fundamentals will probably apply in the longer run, but short-term windows can be dominated by animal spirits and so caveat emptor applies.

“It is virtually impossible to pick tops in markets as aggressive rallies often defy technical levels and supply/demand fundamentals,” Hecht reminds.

For strategic-minded investors, there’s a case for routinely holding a mix of gold and silver as a risk-management component. As I discussed earlier this year at TMC Research, “Silver’s role as a portfolio diversifier compliments gold’s role as a hedging asset at times.” As a result, “Holding both metals to hedge some forms of tail risk for stocks and bonds, in other words, looks like a reasonable strategy for the long run, as opposed to betting that either metal alone will always outshine the other.”

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