Silver Outshines Gold in 2024 with 24.7% Return
Silver has emerged as one of the best-performing asset classes year-to-date, delivering a 24.7% return, surpassing gold's 17% gain. This impressive performance is largely driven by robust industrial demand and supply constraints.
Approximately 60% of silver's total demand stems from industrial applications. Recent years have seen a significant uptick in this demand, particularly due to silver's usage in green technology sectors such as solar energy and electric vehicles (EVs). "Silver's role in greentech is propelling its industrial demand, especially from the solar and EV sectors. It is also used in high-end electronics and 5G technology," said Vikram Dhawan, head of commodities and fund manager at Nippon India Mutual Fund.
Despite the surge in demand, silver supply has struggled to keep up. "Mining production has been hampered by labor shortages and environmental regulations, leading to tighter supplies," noted Navneet Damani, group senior vice-president and head of commodities research at Motilal Oswal Financial Services. The Silver Institute estimates that 2024 will mark the fourth consecutive year of a supply deficit.
The bullish trend for silver is expected to continue. Dhawan believes the metal's strong fundamentals will support its ongoing outperformance. "Silver's future in the medium to long term is closely tied to developments in the greentech space," he said. The fight against climate change is a significant positive driver for silver. With rising temperatures increasing energy demand, solar energy is poised to play a crucial role. "Even conservative estimates forecast over 30% growth in the solar industry over the next decade," Dhawan added.
Damani projects silver prices could reach approximately 1,25,000 INR per kilogram from the current 91,555 INR within the next 12-15 months. This optimism is based on supply-side constraints. "Silver is often a byproduct in the production of zinc, lead, and other metals. Currently, the production cycle for these metals is not robust, and the availability of scrap and concentrates is low, which may prevent market equilibrium in the short term," he explained.
However, several factors could disrupt silver's bull run. "A slowdown in Chinese solar manufacturing or a shift in the U.S. greentech agenda, particularly if Donald Trump is re-elected, could halt silver's price growth," Dhawan warned. Additionally, the U.S. economy could enter a short recession after the end of the rate hike cycle, which could stall silver's price growth, according to Damani.
Investors are advised to include commodities like silver and gold in their portfolios for diversification. "Silver can act as a store of value, a currency hedge, or a proxy for the greentech industry," Dhawan suggested. However, investors should be aware of the cyclical nature of commodities. "Entering the market when prices are high can mean being part of the next downturn. Patience is required until the upward trend resumes," advised Abhishek Kumar, a Sebi-registered investment advisor and founder of SahajMoney.
Investors should limit their commodity exposure to 10% of their portfolios, with no more than 5% allocated to silver. Kumar also recommends a long-term investment horizon of more than five years for those considering silver.
