The rise of the devil’s metal

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Poor man’s gold
The year 2020 is the year of the coronavirus and technology stocks. It is also the year of the resurrection of gold as an investment. However, in the shadow of these “safe havens”, another forgotten precious metal is on a spectacular rise. Since the low point of crisis, the price for a troy ounce (31,1 grams) of silver has risen by 135 percent. Since silver was initially thrown overboard together with most of the investments during the outbreak of the crisis, it stands since the turn of the year at a profit of 58 percent. Where does the sudden interest in the poor man’s gold come from?

The metal of the devil
In the heyday of the euro crisis, sometime in April 2011, the price for silver reached an All-Time High of over 48 dollars. The fear of the collapse of the euro and the enormous pressure on the financial system caused investors to flee en masse in the well-known ports of refuge: gold, and silver. Historically, the price of silver has always followed gold. It only reacts later. However, when silver starts to rise, it goes much faster than gold. This is also the case now. Where gold has already risen by 32 percent this year, silver goes a lot faster. Because of this greater agility, it is known in the financial world as the metal of the devil. Not only can it rise hard, but it can also fall quite suddenly.

Industrial application
Silver, however, is more than just a safe haven of refuge in turbulent times. The metal is used for jewellery and objects such as cutlery. But especially the industrial applications make the metal popular. Unlike gold, for example, more than half of the production of silver is used for industry. Think of electronics and solar panels. Crucial to the energy transition, it is not surprising that the commitment to a green future seems to give the silver price an extra push. In addition to the function of a safe haven, investors with silver can also respond to a revival of the real economy.

Reduced supply
Now the current rally is the result of increased uncertainty in the world, of the very broad monetary policy of central banks, of increased demand from the industry but above all of a drop in supply. About 40 percent of all silver mined worldwide comes from only two countries: Peru and Mexico. Let that be just two countries where the coronavirus has hit mercilessly hard. Because of the virus, the mines had to be closed en masse. When mining silver, the corona measures are more difficult to enforce than with other raw materials. It is, in fact, deeper in the ground, so keeping a distance is not easy. The Silver Insitute, the branch organization of the silver industry, predicts that this year 13 percent less silver will be mined from the South American mines.

Gold/silver ratio
As global infections start to increase again, there is a risk that the economic recovery will be delayed. With the steady growth in the number of infections, some mines are closing again. Less supply, more demand. It is therefore not surprising that the price of silver is now over 28 dollars. According to insiders, this is still far from the top. The price of silver is often expressed against the gold in the so-called gold/silver ratio.

Greening and electrification
At the low point of the corona crisis, the gold was worth 125 times more than the silver. Since then, however, the GSR (Gold Silver Ratio) has dropped to 71 now. However, according to experts, this is still higher than the historical average of around 60. Could silver be higher? Unlike gold, it is still 40 percent below its historical peak. Due to the greening and electrification of the economy, demand for batteries is rising at an unprecedented rate. Silver can be used to produce higher-capacity batteries. Uncertainty about the virus and the broad monetary policy of central banks will probably continue for some time. Investors buy silver mainly through listed Exchange Traded Funds. The worldwide stock they hold has now risen to a record 8445 tons. Perhaps the metal of the devil has even more potential.

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