Head of Commodity Strategy
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.
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.
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.
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.
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%).
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