Why Silver is Outperforming Gold (Again)

Silver’s impressive gains have left it, yet again, outpacing gold by around 50% year-to-date. This is a common pattern for the metal, which has historically tended to outperform gold during certain stages of bull markets. 

Just as silver has done before, it’s capitalizing on the same macroeconomic conditions that have been a boon for gold, while simultaneously tapping into growing sources for industrial demand and benefitting from timeless aspects of old-fashioned investor psychology.

As Peter Schiff said late last month about silver on The Friday Gold Wrap:

“It’s up 13% on the week, 16.5% during the month of November…I think we may get an even more memorable December, because I think we’re going to get a big follow-through. Year-to-date, silver is now up 95%, think about that. And the year isn’t even over, we still have another month, so I think we’re going to end up with a double in the price of silver in 2025.”

This is a predictable outcome, with such silver being so cheap earlier in the bull market and a skyrocketing gold to silver ratio earlier this year both making it clear that the yellow metal’s cousin was readying to rip upward. Silver’s unique position as both a precious and industrial metal places it in a prime spot to deliver even more returns, especially as the Fed turns dovish. Now, with silver skyrocketing, the gold-silver ratio has tanked. But that doesn’t mean it doesn’t have any more room to run, especially as macro factors remain strong for gold to keep rising as well.

Gold-Silver Ratio, 5-Day

While silver isn’t as cheap as it was when the gold-silver ratio was first warning us of what was clearly coming, the bull run isn’t over for either metal.

“I’ve been saying that silver would eventually wake up from its slumber and take the lead and outperform gold, and that’s exactly what it’s doing…I think we have tremendous upside potential. I think silver could trade $100 an ounce by next year.”

Dollar debasement and the recent Fed rate cut decision are obvious catalysts for a further rise in precious metals. And while gold’s reputation as a store of value is well-established, silver is benefiting from growing industrial demand, particularly in sectors like electronics, solar energy, and electric vehicles. These industries rely heavily on silver for its conductive properties, creating a rising tide of demand that is driving the price of the metal higher. The role of silver in the green energy transition, including its use in solar panels and batteries, is expanding rapidly, adding a layer of growth potential that gold doesn’t offer.

Despite rate cuts and insistence from the Trump administration that there is no inflation, global inflationary pressures persist, and investors always turn to precious metals to protect their wealth when they see fiat currencies rapidly losing value. Central banks keep buying gold as well, hedging against inflation and uncertainty. 

This is particularly true among BRICS nations and economies like Poland, Azerbaijan, and Kazakhstan, leading the charge and increasingly distancing themselves in any way they can from US dollar hegemony. Unlike gold, which is largely used for jewelry and as an investment vehicle, silver has significant industrial applications. This gives it a more diverse demand base, which has only been increasing in recent years. From electronics to solar panels and batteries for electric vehicles, silver is essential to a wide range of high-growth sectors, including AI data centers.

Silver vs USD, 6-Month

And, since silver has traded at a much lower price than gold and is known for greater volatility, its potential for higher percentage gains is much greater than that of gold. As silver prices have started to close the gap, investors are taking notice of its ability to deliver higher returns at a lower cost per ounce. This attracts more short-term traders who hope to benefit from swings.

Which leads us to a related point: unit bias. A lower unit price makes it easier to obtain “one whole ounce” of silver versus an entire ounce of gold. In and of itself, the unit price of something doesn’t necessarily imply that you own more actual value, as units are a fundamentally abstract notion. However, investors naturally like being able to obtain an entire unit of something because, for whatever reason, it feels more rewarding. For those who feel that an entire ounce of gold is out of reach, it feels good to be able to own an entire ounce of silver. This makes silver feel more accessible and attractive than gold for lower-net-worth investors. It’s part of why silver earned the silly old moniker as “the poor man’s gold.”

The price difference between the two metals allows smaller investors to accumulate many ounces of silver without the hefty investment that’s required to own an entire ounce of gold. It also contributes, true or not, to the psychological perception at nearly every price point that the more affordable metal has “more room to run.”

But silver’s affordability doesn’t mean it’s any less valuable. Its industrial uses are many, and for legions of investors, silver’s volatility presents an opportunity to capitalize on its more substantial price swings while it is adopted for real-world industrial and technological uses. 

This accessibility, combined with silver’s growth potential, is another reason more retail investors are turning to the metal as an alternative (and a supplement) to gold in their portfolios.

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