Hyderabad: The ongoing tariff wars may have set gold prices on fire, with new records being set by the day, but they failed to spark off a rally in the other precious metal—silver. So why has the white metal failed to match its precious yellow metal counterpart’s impressive rally? Industry experts attribute this divergence to silver’s strong ties to industrial demand and growing recession fears sparked by global trade tensions.
While gold prices breached the $3200/Oz mark in international spot markets on Friday and closed for the weekend at nearly $3238 amid escalating US-China trade wars, silver remained much below its all-time high levels of $50/Oz and closed for the weekend at just above $32.
Avinash Gupta, Vice-Chairman of the All India Gem & Jewellery Domestic Council, explains the disconnect: “Silver is not going up at the speed at which gold is because tariff wars will hamper industrial production. If the tariff wars settle down, silver will be the only metal that will rise like crazy.”
The gold-silver ratio, which indicates how many ounces of silver are needed to buy one ounce of gold, currently stands at around 102-103, which is significantly higher than the traditional optimal ratio of around 60. Gupta pointed out that this suggests silver is undervalued compared to gold, with the ratio reaching its peak of over 120 during the Covid-19 pandemic.
According to Saumil Gandhi, Senior Analyst-commodities, HDFC Securities, while gold gained bullish momentum due to the escalating US-China trade war triggering a safe haven demand, silver is 50% industrial metal, which is why it remained depressed. He pointed out that while gold achieved fresh breakouts, silver has yet to even cross its recent high of $35.
Gandhi said the divergence between gold and silver prices is further driven by strong institutional support for gold, with central banks increasing their gold reserves and ETF flows rising. “Silver, despite having strong fundamentals with demand outpacing supply for the past four years, has been lacking similar investment momentum,” Gandhi said.
Talking about the gold rally, Surendra Mehta, national secretary, Indian Bullion and Jewellers Association (IBJA), said: “Investments are subject to Trump risk. Read Trump’s tweet before investing. No one can predict anything as he keeps changing his mind daily.”
However, on silver prices, Mehta said: “Silver is is an industrial product, so the demand will go down like oil prices if recession comes, all due to trade wars.”
But experts pointed out that silver has significant upside potential, particularly given its crucial role in green energy technologies, including solar PV panels, wind energy, and electric vehicles. Its performance will depend on the resolution of current trade tensions and the return of speculative interest in the white metal.