Is Silver Ready to Overtake Gold?

This year, 2020, has not been good for many things, but it has been good for gold. Gold prices have not been as high as they are today since 2011. The pandemic has driven investors to flee to safe havens, and there does not appear to be any signs of early abatement. To exacerbate the situation, the Beirut blast, which killed scores and wounded scores more, may have added to the allure of gold, keeping the price above $2000. Silver prices have followed suit, with some saying silver is about to outperform gold, even as prices for both metals soar to new highs in the middle of a rapidly weakening U.S. dollar and an uncertain global economy.

As the market enters the second half of the third quarter, gold prices show no signs of abating, not does the pandemic.

Since the beginning of the year, the price of gold is up over $530 per ounce, a 32 percent increase on the close price of 2019. Gold is currently trading at $2,035. The metal is now on track for the best year it has had since 1979. In the meantime, silver has not been left behind. Prices have followed suit. Silver prices have shot up over 30 percent YTD.

Michael Hsueh is a forex and commodities strategist at Deutsche Bank. During a CNBC interview, he said he expects silver to outperform gold in the near future. Market analysts suggest the world economy is preparing to bounce back, and when it does, it will drive industrial consumption. An increase in industrial activity will increase the demand for silver, a precious metal with many industrial uses.

Hsuch went on to say that silver is in much higher demand as a component of industrial production. He concludes that considerably higher demand for silver in a recovering economy is a valid reason to buy the metal.

Citi agrees. Analysts said in a note in July that the rebound in manufacturing activities is pushing the price of silver higher when compared to gold.

The Election Effect

The analysts at Citi also suggest the November Presidential election may come into play. They advocate that markets are factoring in the potential of a Biden win. Should Biden become the 46^th president and deliver on his “green infrastructure” plan, there will be an increased demand for silver.

Under candidate Biden’s plan, passenger vehicles, buses, as well as commuter trains will run on either electricity or clean fuel. Also, Biden’s plan includes the offer of financial incentives to upgrade residential and commercial buildings, making them more resistant to extreme weather conditions.

Ned Naylor-Leyland is a precious metals fund manager at Jupiter Asset Management. Last week he wrote, “during a bull market, silver often ascends faster than more expensive gold.” Naylor-Leyland pointed out the fact that silver is being used in more and more medical applications, displacing gold. He also noted silver is used in electronic components being used in 5G telecom network infrastructure. He suggests there is plenty of upside for both precious metals, and in the view of Jupiter, silver will continue to outshine gold.

According to analysts, there is no reason to think that both gold and silver will not continue their rally.

Distrust in Fiat Currencies

Naylor-Leyland noted factors that appear to be increasing the distrust investors have in fiat currencies, especially the U.S. dollar. The factors noted include monetary easing and the massive spike in government spending in an effort to manage the financial impact of the coronavirus outbreak.

The U.S. dollar and gold have an inverse relationship. The U.S. dollar has been, and it appears it will continue, falling against other currencies. As the dollar falls, gold and silver become less expensive in terms of other currencies. Historically, this has stimulated demand for gold, causing prices to increase.