The recent downturn in US economic data has sent shockwaves through the markets, causing investors to reassess their portfolios and seek safer havens. In response, gold and silver have been gaining traction as investors increasingly view these precious metals as a means of preserving wealth during times of uncertainty.
Interest Rate Cuts: A Boost for Gold and Silver
The Federal Reserve's decision to lower interest rates has created a favorable environment for gold and silver prices. With the Fed now pricing in a 78% chance of an interest rate cut by September, investors are eagerly awaiting further developments. The expectation of lower borrowing costs raises demand for precious metals like gold and silver, as these assets do not pay interest and therefore become more appealing than alternative investments such as bonds.
Why Gold and Silver Attract Investors
Both gold and silver have been considered a store of wealth for investors due to their ability to retain value during times of economic turmoil. They are often used as a hedge against inflation, currency fluctuations, and market volatility. As global markets continue to face challenges such as the upcoming US presidential election and escalating geopolitical tensions, investors are increasingly turning to gold and silver as a means of diversifying their portfolios.
Comparing Gold and Silver ETFs
The popularity of gold and silver ETFs has been on the rise in recent months. The SPDR Gold Trust ETF (GLD), which tracks the price of gold bullion measured in US dollars, has gained 14.3% so far this year. In contrast, the iShares Silver Trust ETF (SLV) has outperformed its gold cousin, climbing 29.1% in the same timeframe.
Other Key Silver ETFs
In addition to SLV, other silver ETFs have also seen significant gains. The abrdn Physical Silver Shares ETF (SIVR) and Sprott Physical Silver Trust (PSLV) have both outperformed GLD, with gains of 29.2% and 29.8%, respectively.
The Industrial Advantage: Why Silver Stands Out
One of the key factors driving the price increase in silver is its industrial applications. As the global economy improves, demand for silver in various industries such as electronics, solar panels, and medicine has increased significantly. About half of the metal's total demand comes from industrial applications, while 30% comes from jewelry/silverware/coins and medal manufacturers.
Silver Market Deficit to Widen
The Silver Institute industry association predicts that the global silver deficit will rise by 17% to 215.3 million troy ounces in 2024, driven by robust industrial demand. This shortage is expected to be the second biggest ever recorded. The institute anticipates a 9% increase in demand for silverware and a 6% rise in jewelry demand this year.
Growing Demand from Emerging Markets
The global push for green energy, increased demand in areas such as 5G, photovoltaics, and automotive industries will continue to boost silver demand. A rebound in global computer shipments and new sources of demand for sensors used in IoT and OLED lighting will also contribute to the rising trend.
A Growing Role for Silver
Silver is expected to play a key role in the shift to 5G wireless network technology, as well as manufacturing solar panels and electric vehicles. As the world continues to transition towards cleaner energy sources and more sustainable technologies, the demand for silver will only continue to rise.
Conclusion
The recent surge in gold and silver prices has sent a clear message that investors are seeking safe havens in these precious metals. With the Federal Reserve expected to lower interest rates and global markets facing increasing uncertainty, gold and silver have become attractive options for diversifying portfolios. As demand for industrial applications continues to grow, the price of silver is likely to remain strong.