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Silver, a highly prized commodity, sets the tone as demand and deficit recover

Gold’s record rally may have grabbed the headlines this year, but it’s silver that’s moving ever faster as the less glamorous metal benefits from robust financial and industrial demand.

Silver soared by almost a quarter in 2024, outpacing gold and making it one of the best-performing major commodities of the year. Yet, in relative terms, silver remains cheap. It currently takes about 80 ounces of silver to buy 1 ounce of gold, compared to a 20-year average of 68.

The two metals largely move in tandem, as they both offer similar macroeconomic and currency hedging properties. As gold hits record central bank buying, retail interest in China and a resurgence in bets on a cut in U.S. interest rates are on the way, silver has followed movement. Although investors have shown little interest in silver-backed exchange-traded funds, physical sales have picked up, notably at Singapore-based brokerage Silver Bullion Pte.

“Even clients interested in buying gold are starting to say, ‘Well, maybe I’ll buy silver first and wait for the ratio to sort of rebalance,'” the founder said Gregor Gregersen. Between April 1 and 25, the establishment sold 74 ounces of physical silver for one ounce of gold, compared to an average of 44 in 2023. The white metal has already progressed against its more expensive cousin, in relative terms . Last January, the gold-silver ratio was above 90, the highest since September 2022. Citigroup Inc. believes that if the Federal Reserve makes interest rate cuts and economic growth remains strong in the second half, the ratio could rise to around 70, while warning that a slowdown would push it in the other direction, according to one note.

Silver has a dual character, valued both for its use as a financial asset and as an industrial input, including clean energy technologies. The metal is a key ingredient in solar panels, and with strong growth in the sector, use of the metal is expected to hit a record this year, according to the Silver Institute. Against this backdrop, the market is heading for a fourth year of deficit, with this year’s shortage considered the second largest on record.

This has led industrial users – who typically rely on mining companies for their supply – to seek ounces by draining major global stocks, according to Silver Bullion’s Gregersen. Stocks tracked by the London Bullion Market Association fell to the second lowest level on record in April, while volumes on the New York and Shanghai stock exchanges are near their seasonal lows.

Over the next two years, LBMA inventories could run out given the current pace of demand, according to TD Securities. The overall figure overestimates the available volume of the metal given that it includes exchange-traded fund holdings, Daniel Ghali, a commodities strategist, said in an April note.

“We will slowly see supply tighten because industrial demand will increase,” Gregersen said. “If investors also start buying, then I think in two or three months my biggest problem might end up being, ‘Where can I find supply?’ rather than “How can I sell the silver?” »

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