Precious Materials Insight: Will silver prices disconnect from gold?
05 Nov 2020
By David Brough
The surge in the gold price this year has coincided with an even bigger jump in silver. But a correlation in price trends in the two metals could weaken in the future due to silver’s increasing importance as an industrial metal.
Gold prices are up by almost a quarter this year, while silver is up around 40 per cent. Typically, upside in gold prices tends to trigger an even bigger jump in silver, and vice versa. Silver is not called “the devil’s metal” for nothing!
One key measure to track the gold price relative to silver is the gold: silver ratio, that is how many times gold is more expensive than silver.
Some analysts trade the ratio – buying silver when the ratio is high, and buying gold when it is low.
That ratio, which comfortably exceeded 100 earlier this year and has since dropped to around 80, has increased markedly over the centuries due to rising demand for gold as a store of value relative to silver.
Consumer sentiment in gold and silver jewellery
Consumer sentiment in gold and silver jewellery, the traditional use for the precious metals, is shifting along with the pandemic.
While meaningful gold jewellery gifting has remained resilient, in part due to its appeal as a store of value, demand for unbranded silver has fallen, says Helen Dimmick, the NAJ’s Retail Ambassador.
The desire for reassurance in owning rare and high-value items during the crisis, may have contributed to a softening in demand for unbranded silver jewellery in the UK and possibly other markets.
A way forward for retailers was to promote silver jewellery under their own brands, Helen said.
Helen explained,
“Smaller or lesser-known brands with messaging and symbolism are doing well.
“Otherwise retailer own branded silver is the way forward.”
Pravin Pattni of NAJ member Minar Jewellers in Tooting said,
“These are exceptional times. With the price of gold being so high the demand for gold was expected to recede significantly. To our pleasant surprise the appetite is still there for customised and wedding jewellery.”
Jo Hill of Hill & Hill The Jewellers in Altrincham said,
“Real gold jewellery is back with a vengeance. We are seeing firm demand for vintage gold jewellery with history and meaning.”
She added,
“Precious jewellery with meaning is absolutely the order of the day.”
However, Jo noted a more subdued demand for silver jewellery items during the pandemic.
Both gold and silver prices could rise in the near term due to expectations that whoever wins the U.S. presidential election on November 3 will likely introduce a new economic stimulus package.
Such a package, which will aim to support millions of Americans whose jobs have been destroyed by the pandemic, is expected to weigh on the dollar and trigger inflationary expectations, underpinning gold and silver.
“Both Republicans and Democrats will be looking to a further massive stimulus package after the event (election) and this has to be positive for precious metals,” wrote Lawrie Williams, precious metals commentator for bullion dealer Sharps Pixley.
Looking forward, prices of silver may become increasingly disconnected from gold because of silver’s growing industrial applications, as demand for the grey metal will hinge more on the health of the world economy.
Almost 60 per cent of silver demand is now for productive uses, compared with around 10 per cent for gold.
Silver is used in the markets of photovoltaic cells for solar energy, as an anti-bacterial and in consumer electronics, all of which are expected to be sturdy sectors during the pandemic.
Disclaimer: Any opinions expressed in this article are solely those of the author and should not be considered as investment advice.
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Source: The National Association of Jewellers