Why Is Silver Outperforming Gold?

This time last year is when government-mandated COVID-19 lockdowns swept through Europe and the Americas. At the time, the lockdowns were widely expected to only last for several weeks. Governments scrambled to put health protocols in place and increase funding to households and businesses affected by the lockdown restrictions. In an initial response asset prices plummeted, the gold price declined more than 12%. While the silver price and equity markets declined by more than 30% (in US dollar terms). However, as government fiscal support and central bank monetary support started flowing, many asset prices started to climb.

Silver prices have more than doubled since the low set on March 19, 2020, and many equity markets have risen more than 50%. Gold prices have lagged, however. The lag in gold prices has been widening since the 40% rally in gold prices reached a new all-time peak high of US$2,067.15 on August 6, 2020; since then, the gold price has since declined 17%.      

Asset Prices Since March 19,2020 graph

Silver continues to grow…

So why is silver faring better than gold? There is a very old saying that silver is actually an investor's gateway to gold. Everyone starts out by buying just a little silver. Since young people have not had time to accumulate assets when compared to older individuals, they have less cash on hand. Silver is priced far lower than gold so it is easier for new investors to jump in with only 1,000 euros.

Stimulus packages handed money to young people who had nowhere to spend it during the lockdown. As new investors, they were always more likely to invest in lower-priced silver than the seemingly more expensive gold. Therefore, the silver outperformance over the gold charted above makes sense. And maybe it will continue to make sense until 2022 when the stimulus ends, and bars reopen. Even, after this transition silver is likely to continue to shine due to industrial demand in renewable technologies.

But could last week’s rise, the best year to date, be a turning point for gold?

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