Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Silver’s Resurgence in 2024: A Precious Metal with an Industrial Edge
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- 2024 proved to a significant year for precious metal investments, including silver
- Silver's performance has been influenced by a unique mix of macroeconomic factors and increasing industrial demand
- This dual role—balancing both investment and industrial demand—could enable silver to outperform gold in the coming year
Looking to the future, silver's dual nature as both an industrial and precious metal will continue to influence its market dynamics. Silver often outperforms gold during periods when industrial metals are rallying, but it lacks consistent demand from central banks—a factor that stabilizes gold prices during downturns. This lack of central bank support can make silver more volatile than gold, especially during corrections.
Key Drivers Behind Silver’s Surge in 2024
Silver's rally this year has largely mirrored gold’s upward trajectory, driven by several shared macroeconomic factors. The demand for investment metals has been fueled by an increasingly uncertain geopolitical landscape, where global tensions and economic shifts have led investors to seek safer assets.
Central banks have been buying gold aggressively to diversify away from the U.S. dollar and dollar-based assets such as bonds. This activity indirectly supports silver prices. Additionally, concerns about mounting global debt, particularly in the United States, have prompted investors to hedge against economic instability by turning to precious metals. The prospect of interest rate cuts, as inflation trends downward, has further bolstered non-yielding assets like silver.
Investment and industrial demand
While investment-driven factors have played a role, silver's price dynamics are also closely tied to its industrial uses, from which it derives around 55% of its total demand. In 2024, increased industrial demand has helped create physical tightness in the silver market. Sectors such as electronics and renewable energy, particularly photovoltaic (solar) technologies, have significantly contributed to this surge. The expectation of sustained industrial demand is likely to keep silver in a supply deficit into 2025.
Investment demand for silver as seen through managed money positions in COMEX futures and total known holdings via exchange-traded funds shows a mixed picture for the year. Managed money accounts, such as hedge funds, are mostly dictated by short-term price developments, as they tend to anticipate, accelerate, and amplify price changes set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning they are actively adding to and reducing their exposure depending on price movements, often leading to bigger-than-expected moves in both directions.
In the week to 10 December, managed money accounts held a 30,685 contract, or 153 million ounce, net long—above the five-year average of 22,900 contracts. Total ETF holdings at 712 million ounces are just 1.7% up on the year and below a five-year average of 792 million ounces. In other words, both long-term ETF holdings and short-term futures positioning are relatively lean ahead of 2025, leaving room for potential gains should fundamentals support higher prices.
The structural deficit and its impact on prices
For the fourth consecutive year, the silver market is poised to experience a sizeable structural deficit, according to the Silver Institute, and given the right fundamental circumstances this tightness may give silver the boost that gold tends to get from central bank demand. Since silver is often a by-product of lead, zinc, copper, and gold mining, higher prices are unlikely to stimulate a significant production increase. This dynamic ensures that supply constraints will continue to support the market.
The ongoing structural deficit can be attributed to miners struggling to discover new silver deposits, even as demand for the metal in photovoltaic cells has surged. Solar technologies alone now account for nearly 20% of total industrial silver demand, reflecting the global push toward renewable energy and sustainable infrastructure.
Silver’s potential to outperform gold in 2025
This year’s silver rally hasn’t shown any fundamental differences compared to past surges. Silver continues to mirror gold’s movements, but with more intensity. Often referred to as gold “on steroids,” silver tends to rise and fall more dramatically than its steadier counterpart.
Despite its strong performance in 2024, silver only reached a 12-year high, while gold achieved multiple record highs. This dual role—balancing both investment and industrial demand—could enable silver to outperform gold in the coming year. At Saxo, we predict a potential decline in the gold-to-silver ratio, which currently hovers around 87, possibly moving toward 75, a level seen earlier in 2024. If this occurs, and with gold reaching our forecast of $3,000 per ounce (a 13% increase), silver might reach $40 per ounce (a rise of over 25%).
Recent commodity articles:
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
29 Nov 2024: Commodities take a breather after action-packed November
28 Nov 2024: Coffee surges to a 47-year high
28 Nov 2024: Choppy gold market turns to Santa for December support
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: Commodity weekly: Strongest performance since April
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
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