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Is Silver The New Favorite Safe Haven For Wall Street?

Safe Haven
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EDITOR NOTE: Fear of heights have driven many investors into various safe havens, and one of the most popular and affordable assets has proven to be silver. The metal, currently trading above $27 per ounce, is up 50% year over year, above 7-year highs. But silver has another appeal, it’s own “hedge” if we were to call it that: it’s demand as an industrial metal. Silver rises when economic fears reach a high point, but it also rises when the economic recovery gets underway, making it favorable to either scenario, upturn or downturn.

Gold has drawn plenty of headlines this summer, as that most coveted of precious metals has been on a historic rally that saw prices break the vaunted $2,000-per-ounce barrier in early August.

But it's the less lustrous silver that's having a moment. Silver prices have climbed roughly 60% since the start of 2020 and closed at more than $28 per ounce on Monday, with the metal trading at levels not seen in more than seven years.

Silver’s rally has been motivated by many of the same market factors that have driven gold prices to historic highs this year. Just as gold has long been considered a “safe haven” for investors wary of tumultuous macroeconomic conditions, silver has similarly emerged as an option for those uncertain about what the future may hold for equities and other riskier bets.

Sure enough, the precious metal was up nearly 2% in early European trade on Tuesday, outperforming stocks.

Even as the stock market continues to climb in the face of a coronavirus-hit U.S. economy, other indicators have pushed many investors into such safe havens. For one, the U.S. dollar continues to slump, having fallen to its lowest levels in more than two years

While the Federal Reserve’s massive stimulus measures in the wake of the coronavirus pandemic contributed to a sagging dollar (and helped push gold and silver prices upward), the Fed’s recently unveiled higher-inflation, low-interest-rate stance has pushed the dollar down further. Super accommodative monetary policy is also pounding Treasuries, limiting the appeal that bonds—another traditional safe haven—would hold for investors.

The cumulative effect has been an unprecedented amount of money flowing into exchange-traded products (ETPs) backed by silver. According to financial news and data website Kryptoszene, investors have poured $4.8 billion into silver ETPs, including exchange-traded funds (ETFs) and exchange-traded notes (ETNs), since the start of this year—more than the total inflows seen in the previous seven years combined.

As with a similar boom in gold ETFs, the heightened interest in silver-backed funds owes much to the increased prevalence of ETFs in general over the past decade. Such passive investing vehicles have provided investors with an easier and more affordable means of tapping the market for commodities like gold and silver—with retail investors, like those on the popular stock trading app Robinhood, having taken notice amid the current rally.

But silver's draw could be for more practical reasons. Bank of America analysts recently pointed to silver’s application in industrial uses—including renewable energy applications, such as solar panels, that feature prominently in Democratic presidential nominee Joe Biden’s climate plan. The analysts see a $35 per ounce 2021 price target as “feasible.”

“As silver is not only a capital investment, but is also used in numerous future technologies such as electromobility and renewable energies, further price rises are anything but unlikely,” according to Kryptoszene analyst Raphael Lulay.

So while it remains to be seen whether silver prices approach the highs witnessed during the silver boom, and bust, of 1980—when they soared to $50 per ounce before crashing back down to earth—it appears this current rally may have some life left in it for investors.

Originally posted on Fortune

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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