Has silver’s time to shine finally arrived?

Since the beginning of last year, gold has received the lion’s share of the precious metals press. It’s easy to understand why. From January 2024 through the present day, the price of gold has appreciated 60%, reaching record highs nearly 70 times along the way.

While overshadowed by gold, silver’s performance over the same period also has been impressive, rising 50% after last week’s stunning burst of energy.

And it is that very burst of energy which is the point of today’s brief essay. Because while there’s no disputing that gold has been the more resilient metal so far during the current precious metals bull market, silver’s powerful move higher in recent days has raised speculation that gold’s “poorer cousin” could begin outperforming its wealthier relative.

Last week, silver suddenly surged in a big way, surging roughly 3.5% on Thursday and ultimately finishing up a startling 9% for the week. More notable to some is that silver finally powered through $35 per ounce in a demonstration of exceptional strength, surpassing what had been a stubborn level of technical price resistance last breached during the financial crisis.

Strategist Maria Smirnova: Surpassing $35/Oz. “Highly Significant,” Could Lead to “Much Higher” Price

Among those who believe silver’s bold push higher may be the beginning of something much bigger is Maria Smirnova, the highly respected strategist at Sprott Asset Management.

“The breakout has been brewing for a while, as silver had attempted to break through the $35 level a couple of times in recent months, so this is highly significant,” said Smirnova, who added:

“If the technical move catalyzes physical investor buying, it can take silver much higher very quickly.”

Rhona O’Connell, head of market analysis at StoneX, isn’t quite as optimistic, noting that there doesn’t appear to be a readily apparent reason for the burst of momentum. O’Connell suspects much of the positive energy surrounding silver at the moment could be inspired by a wave of “ratio trading.”

What she’s referring to is the gold-to-silver ratio, a simple metric that expresses the relative valuation of each metal in terms of the other. The ratio is determined by dividing the current price of gold by the price of silver. The higher the ratio – meaning, the more ounces of silver it takes to buy an ounce of gold – the greater the perception among many analysts that silver is undervalued relative to gold.

Silver May Be Benefitting Right Now From “Ratio Trading,” Says Analyst

For perspective, the long-term value of the ratio is closer to 60. More recently, however, as gold has soared and silver’s rise has been more muted, the disparity between the prices of each has pushed the ratio to roughly 100, implying that silver could be significantly and acutely undervalued. O’Connell suggested some traders who’ve been on the sidelines may have seen enough:

“Given its [silver’s] recent underperformance against gold, it looks to me that there could be some ratio trading going on now that it’s [the gold-to-silver ratio] dipped below the 100 level.”

By the end of last week, the ratio had fallen to around 92. Those who believe in the credibility of the metric would say silver has a great deal of room left to run before the ratio reverts to the mean (back to around 60).

For her part, O’Connell, while hopeful about silver’s near-term prospects, is somewhat skeptical that the metal will continue to move higher, or even sustain the dramatic gains made in the last several trading days.

“The fact that silver is at the highest since 2012 is, of course, of interest, but silver is notoriously volatile and it is fully capable of dropping as sharply as it rises,” O’Connell told MarketWatch. “This is not necessarily a false move, but it [silver] is now heavily overbought and should, as always when silver does this sort of thing, be treated with caution.”

“Silver Has a Very Positive Investment Case Right Now”

Sprott’s Maria Smirnova clarifies that while silver’s technical set up could keep strengthening the metal higher in the short term, any significant move higher from here is likely to be attributable to strong fundamentals, particularly as they pertain to silver’s industrial demand. Silver is the world’s best conductor of electricity, which explains why industrial demand accounts for more than half – 55% – of the metal’s overall demand. And against that backdrop, silver finds itself in a structural supply deficit for the fifth consecutive year…a fact not lost on Smirnova.

“We have been talking for a while about the supply/demand deficits in silver,” said Smirnova said. “Silver has a very positive investment case right now.”

Trade policy uncertainty is expected to persist, however. And as long as it does, that could prove to be a headwind to silver’s industrial desirability through the near future.

As for silver’s technical price action, while it’s reasonable to think the upward momentum catalyzed by last week’s activity may continue through the very near term, it could be risky to assume that technicals alone will generate lasting momentum. They could, however, potentially aid a longer-term, fundamentally based uptrend through reflexivity, which may serve to generate a positive feedback loop between shorter-term, technically driven price action and solid fundamental drivers.

Which brings us to what those “solid fundamental drivers” may be. Maria Smirnova – and many others – see among them silver’s critical role in industry, more generally; its hyper-critical role in the green energy industry, more specifically; and its chronic supply deficit.

But as was just mentioned, it’s unclear how reliable silver’s industrial demand will prove to be in the increasingly murky trade environment.

Then what about silver’s other most fundamental of drivers – its safe-haven demand?

I would suggest the viability of silver’s investment case through the foreseeable future may have as much to do with its appeal as a far-cheaper safe-haven monetary metal as with its industrial demand.

Even if one doubts whether we really are in the beginning stages of an actual silver price explosion, it’s worth remembering that broader economic, fiscal and geopolitical uncertainty remains a reliable driver of precious metals’ safe-haven potential. And as long as this uncertainty remains in play, it’s difficult to imagine silver not continuing to exhibit at least some of the same resilience that has kept it near the top of the best-performing assets over the past year and a half, even if the metal’s industrial demand suffers in the months ahead.

This post is created and published for general information purposes only. The Gold Strategist blog and Bob Yetman disclaim responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this post – or any other post featured at this blog – should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.