What Could The Silver Price Do As Banking Falters And Inflation Roars?

(March 28,2023- Dan Ashmore, CFA)

• Silver is gold's far more volatile cousin, and has underperformed it drastically in recent years
• Adrian Ash, director of research at BullionVault, joins the podcast to chat about investing in silver
• Host Dan Ashmore and Adrian chat about its price drivers, past performance, what could happen next and more

I’ve long thought gold is a funny asset. It does pretty much nothing, aside from small use cases like jewelry. And yet humans are obsessed with it, while it trades as a mainstream financial asset.

But what about silver? If gold is weird, what about this even weirder metal that only sort of acts like a store of value?

I wrote a piece at the start of the year on why someone could invest in silver over gold. Since 1973, gold has been the unquestioned winner, with the gold/silver price ratio spiking to over 100 during COVID, despite being below 30 in 1973, as the below chart shows.

But could this change going forward? This was a central topic in the episode, and Adrian isn’t so sure. Looking at the price drivers, he chatted about the big difference between gold and silver: the latter is driven partially by a store of value status as well as its industrial demand, whereas gold is not used for much beyond a store of value.

And yet in recent decades, that store of value thesis has won out. Gold has been bought up by central banks, institutional funds and governments, and is now loitering around $2,000 per ounce – close to its all-time high – while silver is trading at around $23 per ounce, having been close to $50 per ounce in 2011.

But it’s a different kind of asset, as Adrian also says. The volatility alone is on a whole other level.

But as we continue to navigate these choppy waters of 2023, and the Federal Reserve contemplates slowing down rate rises as the banking sector wobbles, what does this all mean for silver? Could inflation roar back if the Fed pivots, with silver reaping the benefits? Or will a potential recession and fall in industrial demand for silver pull its price all the way down?

It’s a difficult question to answer, but it’s one Adrian and I did our best to discuss this week.