The dynamic metal – How silver is unique and presents a compelling investment opportunity
Silver has had a significant run in 2020 – it is as if it’s going for the gold medal. Investor interest in silver has reached new highs this year as evident from the record levels of physical silver held in exchange-traded products globally (see figure below). At WisdomTree, we believe it is useful to view silver through three unique lenses – tactical, strategic, and thematic. Silver’s allure as an investment becomes more apparent when its dynamic nature is studied through those three perspectives.
Source: Bloomberg, Data as of 27 October 2020. Data starts from 28 April 2006 which is the earliest data point available for the series.
Historical performance is not an indication of future performance and any investments may go down in value.
An industrial metal – the tactical
According to the Silver Institute, the precious metal draws more than half of its demand from industrial applications1. Silver is an excellent electrical conductor and also has antimicrobial properties. This makes it ideally suited for use in electronics, photography, automobiles, water purification systems, and medical devices. A cyclical upswing in global economic activity, as the world recovers from the pandemic, bodes well for silver’s physical demand as an industrial metal. Investors seeking a tactical exposure to the economic upswing, have the option to turn towards silver like they would towards a pure base metal like copper.
A downside and upside hedge – the strategic
On account of its strong price correlation with gold – around 70-80% over the last 30 years2 silver offers similar strategic benefits as its yellow cousin. Investors typically seek gold as a safe-haven to hedge against economic, market, and geopolitical risks – making the precious metal a downside hedge. Investors also tend to add gold to their portfolios to hedge against rising levels of inflation – a property of an economic upswing. Silver presents itself as an alternative asset for achieving similar strategic objectives given the close alignment of its price moves with gold.
A raw material for megatrends – the thematic
Silver is an integral component in fast-growing technological megatrends including 5G, electric vehicles, and solar power generation. 5G technology, for example, is fostering a revolution in global connectivity and requires new infrastructure including base stations, home devices, smartphones, and antennas. Silver is a key material in the 5G ecosystem due to its use in semiconductors, cabling, power distribution and devices. Silver’s 5G demand is expected to grow from around 7.5 million ounces today to 23 million ounces in 20303. Electric vehicles and solar power generation are equally exciting avenues of growth for silver demand. Silver is, therefore, not just an asset for the here and now, but a thematic investment for the future.
Source
1 Silver Institute (as of October 2020)
2 WisdomTree (as of October 2020)
3 Silver Institute (as of October 2020)