A landmark report by the Centre of Economics and Business Research (Cebr) on behalf of CoinInvest.com and its sister company Silver-to-go reveals that silver has heavily outperformed most other asset classes since 2000. Indeed, the research shows that £10,000 invested in silver would have yielded £23,000 return between 2000 and 2014, compared to a return of just £6,000 from the same investment in the FTSE 100 Index and a yield of £5,717 from the FTSE Euro 100 Index over the same period.
Daniel Marburger, director of CoinInvest.com whose sister company, Silver-to-go, sells silver bars and coins to investors throughout Europe, said: “As far as alternative investments are concerned, gold usually has the upper hand, primarily because of silver’s steep tax profile across Europe. Yet, despite fiscal barriers, silver has had a shift in recent years. Not only has its price risen to levels unseen since records began, but investors have increasingly recognised its benefits in the face of global and economic uncertainty.”
The silver price
Cebr analysis also shows that despite recent falls, silver’s price has risen nine-fold since 1970 and has more than doubled in the past decade. More recently, the silver price has followed an upward trend in the face of elevated uncertainty in the aftermath of the 2008/9 financial crisis and it reached a peak of $48.7 in April 2011. At this stage, silver’s price was rising faster than that of gold leading to a fall in the gold-silver price ratio. Although the gap in the performance of the two metals has started to narrow as silver prices have recorded falls sharper than gold prices, silver still outperforms gold today* when setting 2009 as a benchmark.
Although the price of silver has been on a downward trend since April 2011, the research reveals that today’s price of $16.8 per troy ounce** is still close to double the long term average of $8.8 and nine times higher than the price set when records began in 1970.
Industrial demand
The report also shows that demand for silver is driven by industry and technology compared to gold, demand for which is driven by investment and consumer activity. More than half of the world’s silver in 2013, for example, went into industrial applications in technology. This means that demand for the precious metal is highly dependent on the economic outlook.
Silver’s chemical properties favour its use in a number of industries. Most interestingly, the precious metal is a key input into photovoltaic cells, the technology used in the majority of solar panels. Further, the International Energy Agency expects solar photovoltaic installed capacity to grow robustly to the end of the decade, further underpinning demand for silver.
Demand from India
Restrictions on the gold trade in India have helped to boost the silver market. In 2013, the Indian government introduced restrictions to contain the gold market with rises in taxes and constraints on imports. As a result, many investors and consumers turned to silver, pushing up overall fabrication. This was despite a decline in Indian industrial demand for silver, which was caused by a slowdown in economic activity.
What will affect the price going forward?
The ISIS crisis, Ebola outbreak and the Russia-Ukraine conflict have fuelled a global rise of risk and uncertainty. The Eurozone economy has been particularly hard-hit with its three biggest economies (Germany, France and Italy) on the brink of recession again. As a result, the European Central Bank is expected to keep monetary policy loose for a considerable period of time. This will help to boost consumption in the form of jewellery or silverware because of low cost loans and general boost to household finances.
Meanwhile, despite the optimism for economic progress, the continued weakness in the UK and US labour markets will keep rates on hold for most of 2015 because of the fear of the risk to recovery in both markets. Even when tightening kicks in, it is unlikely rates will return to the high levels seen in the pre-crisis period. Going forward, the industrial use of silver is a key factor expected to determine the demand for, and price of, the precious metal in the coming decade. The solar photovoltaic energy industry is expected to provide a significant and growing source of silver demand. And, importantly, the report predicts that silver will make gains in emerging markets as growth and development aid the expansion of the middle class in these regions.
Danae Kyriakopoulou, Cebr economist and main author of the report, said: “The outlook for the industrial demand for silver is bright given the growth potential of one of its main applications - the solar photovoltaic energy industry. Consumer demand is also expected to remain robust especially in emerging markets where demand is still low on a per capita basis and has further room to catch up as growth and development aid the expansion of the middle class in these regions.”
Daniel Marburger added: “The economic events of the last five years have shaken some people’s belief in the financial world. The collapse of Lehman Brothers, for example, has had far-reaching consequences and the global economic landscape is taking time to recover. It is in this environment that silver, a significant safe haven asset, has come to the fore.”