Last year, the return from silver is 47.78% while the return from gold is only 13.29%. If someone invested $100,000 on 4/02/2020 then the today’s worth is $147,780 in silver while in gold is $113,290, $34K difference.
Here is the 1-year chart of silver:
Here is the chart of gold for 1 year:
What determines the silver price?
The key factors that affect the volatility of silver are fluctuating industrial demand and store of value demand, geo-political uncertainties, rising crude oil prices, depreciating dollar, government policies on major export and import destinations, sales by China and other central banks, direction of gold prices and direction of other commodity prices.
The price of silver has been very volatile historically.
Although the ratio of gold to silver price has been varied over the past, in the last 3 years we observe that silver prices follow gold prices and may act as a substitute for them in the future.
Here we attached the chart to show that the most of the time gold and silver follows the same direction:
Blue line represents the gold, Yellow line represents the silver
Factors affecting the price of silver:
- Industrial Demand: Silver are being explored in batteries, superconductors and microcircuits, which may further increase non-investment demand. The expansion of the middle classes in emerging economies aspiring to Western lifestyles and products may also contribute to a long-term rise in industrial usage. Moreover, retail investors strong interest in ETFs helps to explain the growth in demand from this group for physical bullion over the rally-to date.
- Gold Prices: Despite all of silvers fundamental drivers, gold is considered as the primary driver for silver prices. In a bullish environment, speculators tend to be interested in most of the precious metals. So, it leads to an increase in the investment demand for silver. Silver having a comparatively smaller market as compared to gold, it does not take much time to drive the prices higher. At the same time when the environment is bearish, investors lose confidence in silver very fast and cause the prices to fall. From the analysis of the trend of the gold-silver ratio, it can be seen clearly that silver has a tendency to follow the prices of gold.
- US Dollar: The relation between silver and US Dollar we can clearly see that there exists an inverse relationship between silver prices and USD Index. During recession US Dollar is considered a safe haven, people around the world tend to disinvest in commodities and invest into US Dollar. We can clearly see that the prices of precious metals such as silver, palladium, titanium, etc. declines during recessionary periods. The above trend clearly suggests that silver can be used only as a long-term hedge against inflation, but it cannot be used in short term as a recessionary hedge.
- Oil Prices: Historically oil has shown a strong correlation with gold. Gold and silver also seem to have a stable relationship. Based on this it might be logical to conclude that oil and silver should also have a stable relationship. It has been argued that the mining of silver is an energy intensive process and hence as the oil prices rise or fall, the prices of silver would also rise or fall. This however would be over simplification as it undermines various other important factors. There is also another argument that says that silver and oil should have greater correlation than silver and gold as they are industrial elements and the factors affecting their demands would be common. However, contrary to this silver is not a perishable commodity whereas oil is.
Since the 1960s silver and oil have had a 0.7 positive correlation, this is quite strong but not as strong as of gold and oil that have a correlation of 0.8.
- National and Global Economic Trends: Silver, along with gold, is considered to be a safe haven investment. This means that silver is seen as retaining its value and purchasing power better than paper currency and certain other assets when there is economic uncertainty. When and if those economic concerns turn into full crises, there is generally significant upward pressure in prices for silver and other precious metals.
Comparison between the Gold, Silver, S&P 500, Dow Jones, NASDAQ:
Yellow line represents NASDAQ, Purple represents Gold, Blue represents Silver, Green represents S&P 500, and Pink represents Dow Jones.
We take the data of 18 years (2003-2021). In 18 years, period the NASDAQ increased by 1349.40% followed by Silver is 467%, Gold is 465.41%, S&P 500 is 333.62% and the worst perform index is out of 5 is Dow Jones which gives 272.55% return.
Now understand with the starting investment amount and today’s worth it:
- NASDAQ: If some invested $1000 in 2003 then the today’s worth is $134,940.
- Silver: If some invested $1000 in 2003 then the today’s worth is $46,700.
- Gold: If some invested $1000 in 2003 then the today’s worth is $46,541.
- S&P 500: If some invested $1000 in 2003 then the today’s worth is $33,362
- Dow Jones: If some invested $1000 in 2003 then the today’s worth is $27,255.
We assume that the price of gold will go down.
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