A 34 per cent rally in the price of silver made July one of the best months on record for the precious metal, eclipsing every major global financial asset.

The price rise was the biggest since December 1979, comfortably outstripping gains of about 13 per cent in the Shanghai Composite index and Brazilian stocks, and an 11.5 per cent jump in gold, according to Deutsche Bank. While a handful of individual stocks beat even silver, the metal towers above other commodities and stock indices.

Silver, known as the “poor man’s gold”, has risen in tandem with gold, which touched an intraday peak of $1,984 a troy ounce earlier this week. Silver hit a six-year high of $26 an ounce last week, making it still more than 70 times cheaper than its fellow metal. 

“The pace of buying has been incredible across the silver products, whereas you’d expect that strength in gold,” said Suki Cooper, an analyst at Standard Chartered in New York. “But once investors feel they are priced out of gold they may turn to silver, or they may look at the gold/silver ratio and feel it is undervalued.” 

Holdings in silver-backed exchange traded funds had risen to a record 8,445 tonnes this year, Ms Cooper added, almost double the previous record in 2009.

Interest in gold and silver has surged this year, reflecting concerns that the Federal Reserve’s stimulus to tackle the pandemic could stoke inflation, for which precious metals are often thought to provide a hedge. With government bonds around the world yielding little to nothing, the allure of gold and silver, which do not pay interest or dividends, is also enhanced.

Line chart of $ per ounce showing Silver hits six-year highs

The price of silver, which is notoriously volatile, lagged gold at the beginning of the year, causing the gold/silver ratio to hit an all-time high of 125 in March. Since then silver has risen more than 100 per cent while gold is up 30 per cent.

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Ned Naylor-Leyland, precious metals fund manager at Jupiter Asset Management, said silver could continue to outpace gold, as the ratio was still more than double what it was in 2011, when gold prices last rose above $1,900 a troy ounce.

Silver’s industrial usage in electronics and solar panels is also helping to spur demand, according to Jonathan Butler, an analyst at Mitsubishi. 

The pandemic has increased demand for silver, which is used as a catalyst in ethylene oxide that is found in plastics for face masks and gloves, Mr Butler said. 

“Silver’s performance as a supercharged version of gold can be partly attributed to it having a solid industrial base, unlike gold, and one that stands to benefit . . . in the scary new world of coronavirus,” he said.

Silver last traded at just above $24 an ounce. Analysts at UBS forecast the price will rise to $26 during the next six months as US interest rates are kept low and industrial demand starts to pick up. In addition, silver mine supply had also been disrupted by Covid-19, the bank said.

But strategists at Morgan Stanley are more cautious on silver’s prospects and said a sustained rise above its current level required stronger industrial demand. While silver was a key component in solar panels, producers were using less of the metal in every solar cell, the bank said.

Via Financial Times