Calendar 2024 has been good so far for precious metals. While gold has been in the limelight, silver, another precious metal, has been rising too, but keeping under the radar. It hit a 12-year high of $32.71/ounce last week. The white metal has outperformed the yellow metal so far this year. In terms of dollars, silver has appreciated 33 per cent while gold is up 29 per cent.

What is peculiar for silver is its dual nature. While it is deemed as a precious metal, the majority (nearly 60 per cent) of its consumption is for industrial use, staying close to base metals, too. Interestingly, silver has outperformed other metals like aluminium and copper this year.

Run for equity

Notably, it has been competing against equity markets as well. For instance, Nifty 50’s and S&P 500’s return of 20 per cent each is lower than what silver gave in the first nine months of 2024. Gold also has outperformed the benchmark indices. Several factors have been helping the price shoot up but the key has been the falling US dollar.

Rate-cut driven rise

As the expectations for the beginning of the rate-cut cycle increased, the dollar began falling. The dollar index depreciated 5 per cent over the last three months. Particularly, the market started pricing in rate-cuts in July.

While there has not been much of a fall after the Fed delivered a higher-than-expected 50-basis point cut, silver had already capitalised on the dollar weakness in the last three months. The recent leg-up augmented the upside that silver has been experiencing since the beginning of the year.

Going ahead, as the Fed goes on with rate cuts, the appeal for precious metals will go up, potentially helping the silver gain further. Like the treasuries, precious metals have the safe-haven tag. However, the interest income in holding treasuries mean a natural choice for investors in seeking safety. But as the rate falls, gold and silver can become more attractive. But one should note that silver is more volatile than gold, and historically it has done well during economic expansion.

Anticipating a rise in price, money managers started taking bullish bets since February, pushing silver higher. As per the Commitment of Traders (COT) report by CFTC (Commodity Futures Trading Commission), the net long on silver futures increased from 4,331 contracts on January 30 to 43,175 on September 24. This has had a significant positive impact on the prices. That said, the supply-demand balance has been in favour of the white metal.

Falling stocks

Silver inventories have been on a decline since 2021. The Comex inventory has fallen from nearly 400 million ounces (moz) in early 2021 to 305 moz in September this year. This is because demand topped supply in the last four years. The Silver Institute forecasts that the deficit will grow to 215 moz in 2024 from 184 moz in 2023, possibly leading to further depletion in stocks – a positive for the metal.

industrial demand

‘Electrical and electronics’ and ‘jewellery’ are the major demand drivers for silver. Within the former, a surge in demand for photovoltaics (PVs), which are used to make solar panels, is expected to drive the demand growth this year, particularly from China, the largest producer of solar panels.

China’s central bank recently announced a slew of measures including cutting a key policy rate and reducing borrowing rates for existing mortgages in the property sector. It also announced liquidity support for the equity market.

Broadly, in the commodity market chain, China is a huge consumer and an improvement in demand from the Asian giant can have a positive impact on prices. This is already being reflected by a recovery in metal prices. Silver, which as mentioned earlier, has considerable industrial application, can get positive impetus going ahead.

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