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Silver in the spotlight

Summary:
Macroview Silver is usually referred in financial markets as ‘high-beta gold’ or the ‘poor man’s gold’. As such, the recent appreciation in silver prices is not surprising given the robust performance of gold. April 2016 was a good month for gold, with prices rising by +4.9% per ounce in US dollar terms. But it was a stellar month for silver, which rose by about 15.6%. Silver tends to be highly correlated to gold (the average 12-month rolling correlation since 1980 stands at 0.70), so it is not surprising that both performances point in the same direction. Looking at demand, industrial demand is the key differentiating factor between these two precious metals. Industrial demand accounts for less than 10% of total gold demand, but more than 50% of total demand for silver. Consequently, higher prices for industrial metals tend to favour silver over gold. This is why silver is often viewed as a hybrid metal — part precious, part industrial. Consequently, silver’s recent outperformance likely reflects the recent improvement in the outlook for industrial demand, mostly stemming from stabilisation in China. However, the increasing debt burden means investors should remain wary about the policy support that has been underpinning demand in China.

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Silver is usually referred in financial markets as ‘high-beta gold’ or the ‘poor man’s gold’. As such, the recent appreciation in silver prices is not surprising given the robust performance of gold.

Silver in the spotlight

April 2016 was a good month for gold, with prices rising by +4.9% per ounce in US dollar terms. But it was a stellar month for silver, which rose by about 15.6%.

Silver tends to be highly correlated to gold (the average 12-month rolling correlation since 1980 stands at 0.70), so it is not surprising that both performances point in the same direction. Looking at demand, industrial demand is the key differentiating factor between these two precious metals. Industrial demand accounts for less than 10% of total gold demand, but more than 50% of total demand for silver. Consequently, higher prices for industrial metals tend to favour silver over gold. This is why silver is often viewed as a hybrid metal — part precious, part industrial. Consequently, silver’s recent outperformance likely reflects the recent improvement in the outlook for industrial demand, mostly stemming from stabilisation in China. However, the increasing debt burden means investors should remain wary about the policy support that has been underpinning demand in China.

About Luc Luyet
Luc Luyet
Luc Luyet has been working in the financial services industry for the last 12 years. For 8 years, he has been responsible for Technical Analysis for all asset classes and he was a member of a long only fund management team in one of the largest Private Banks in Switzerland and Europe. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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