Investors experienced an unprecedented market environment in 2020, and like many other asset classes, precious metals—including gold and silver—experienced significant volatility. While gold and silver both declined in March 2020, they sharply recovered and continued to rally, ultimately gaining 22% and 34% for the year, respectively. While gold is often the precious metal that catches investors' attention, its sibling was shining, and some of the reasons why are beyond the commonly recognized investment characteristics of precious metals.
Investors often incorporate precious metals like gold and silver into portfolios because of their performance under certain economic conditions—they are traditionally considered safe-haven investments by many investors. They also attract attention when significant monetary or fiscal policy measures are newsworthy. For example, a weak dollar and low interest rates are often conditions supportive of gold and silver. Given the market environment last year, and continued global public health issues, it is no surprise that these two metals have caught investors’ eyes and experienced strong gains. Looking beyond these common investment traits and characteristics, there’s one key difference between gold and silver that may make silver a more appealing investment opportunity.
Silver is very attractive as an industrial metal compared to gold. It is a highly versatile metal, and between 50% and 60% of total silver1,2 demand comes from industrial applications, compared to only about 8% for gold.3 Although they have changed throughout the years, the applications and demands for silver now include everything from electronics to medicine to automobile manufacturing. For example, once upon a time in the age of film, photography consumed an incredible amount of silver. That demand has nearly vanished since digital cameras came onto the scene. However, silver is now an integral part of growing technologies, such as touch screens, LEDs and, particularly, solar panels.
So, how is silver used in solar panels? Photovoltaic (PV) cells—what solar panels are essentially made up of—contain metal that forms an electrical current from captured sunlight, which can then be stored or expended as energy. Because silver has the lowest electrical resistance of any metal at standard temperatures, it is considered the most effective metal when it comes to converting sunlight into energy. In short, silver stands as the metal of choice in ensuring the operational efficiency of solar panels.
Moreover, silver’s role as part of the fast-growing solar industry will likely be a key factor in whatever staying power silver enjoys over the coming decades. According to the Silver Institute, a World Bank study recently forecast that, by 2050, silver consumption in energy technologies alone could reach a level that would equate to more than 50% of the current total silver demand. This enormous rate of growth would, among other things, underline silver’s importance to an industry that looks set to take flight.
A near-term case for such optimism comes in President-elect Joe Biden’s energy proposals. In his campaign’s official clean energy plan, Biden pledges to “unleash a clean energy revolution in America” that will “spur the installation of millions of solar panels.” While few people need reminding that the roadblocks to a true “energy revolution” will be numerous, the scope of Biden’s plan—and the scope of solar panels’ inclusion in that plan—constitutes one of the biggest bets on solar energy to date. By extension, it would also support silver having an essential place in the future of our energy economy for decades to come.
Historically, silver has been more volatile than gold, and the investors seeking to express tactical views and positions in silver have had a range of investment vehicles to consider, including leveraged and inverse ETFs. These ETFs can be used in an attempt to manage risk and potentially enhance returns.
These funds have a daily investment objective and are benchmarked to the Bloomberg Silver Subindex,SM which are intended to reflect the performance of silver as measured by the price of COMEX silver futures contracts. It is important to note that the Bloomberg Silver Subindex is a “rolling index,” which means that it does not take physical possession of any silver. It reflects the performance of its underlying COMEX silver futures contracts, including the impact of rolling. Investors considering leveraged and inverse funds should take the necessary time to learn about and understand all of the associated features and risks. To learn more, please reach out to our Tactical Specialist Team.
Bloomberg, 12/30/2005–12/30/2020, LBMA Gold and Silver prices
*The author would also like to thank Timothy Bernstein for his contributions to this article.
This is not intended to be investment advice. Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investing is currently subject to additional risks and uncertainties related to COVID-19, including economic, market and business conditions; changes in laws or regulations or other actions made by governmental authorities or regulatory bodies; and world economic and political developments.
Investing involves risk, including the possible loss of principal.
Information provided by ProShares and SEI Investments Distribution Co., which is not affilated with ProShares.