by Jeff Clark, Gold Silver:
It hasn’t been fun for silver investors. Gold has moved higher in response to the crisis, but silver has been nothing but weak and vulnerable this year.
Is this silver’s destiny? Is this all that we can expect for the foreseeable future?
No. History says a big change in the silver price is coming. We’ll look at that, but first let’s examine why, at this point in the crisis, it’s been so lifeless…
Silver at the Onset of Crisis
We’ve fielded a lot of questions on why silver isn’t rising right now, in the midst of the biggest crisis in modern times. And at a time when gold is rising.
But actually, the lag in the silver price is historically normal behavior when these types of crises first strike…
The two biggest effects of the pandemic have been a stock market crash and a hit to economic activity. How has silver performed during these events in the past?
First, here’s how both gold and silver prices have performed during the eight biggest stock market crashes before this one. Green means it was a positive return, yellow means it fell but less than the S&P 500, and red means it fell more than stocks.
You can see that gold rose in every instance but two, with one of those declines less than the S&P 500. And we should point out that the 1980-1982 period was right after gold’s biggest bull market in recorded history, so the selloff wasn’t exactly surprising. Overall, a pretty good track record.
But for silver it was almost the opposite. Over the past 45 years, it has risen in only two of the biggest stock market crashes (one of which was only 1%), and fallen in all the others. It did fall less than the S&P 500 in five of those instances, but more in two of them.
This data suggests that in the throes of a stock market crash, a decline in the silver price is historically normal behavior, even though it’s usually less than the S&P 500.
If we added in the 2020 crash, the bar would be red for silver. Through April 24, silver is down about 15% YTD, while the S&P 500 has fallen 12%.
What about during economic slowdowns? While we haven’t officially entered a recession, it’s clear one is on the way.
Here’s how silver has performed during the past seven recessions in the US, going back 50+ years…
In the last seven recessions, the silver price fell in five of them, and rose in two. The range in returns has been wide, including some gains, but overall silver has not logged a strong track record during recessionary periods.
This is in stark contrast to gold.
Gold has risen in five of the past seven recessions. And in the two it fell, the decline was only by single digits.
This data specifically tells us that silver is not highly responsive to a stock market crash or a recession.
This isn’t terribly surprising. In 2019, 81% of silver supply went to non-monetary uses—industrial, jewelry, silverware, solar, etc. If economic activity declines, demand for these uses, for the most part, would also decline. If investors are scared by a crash in stocks or the onset of a recession, they tend to flee to gold first.
In other words, silver’s recent price behavior, based on the last 50 years of history, is normal.
So what is going to push silver higher? And when?
There are a lot of potential catalysts, but three stick out…
#1: A Rise in Inflation
Inflation isn’t on the radar of most investors right now, but given the extent of currency abuse, especially the Fed’s public admission that QE is “unlimited and open-ended,” it seems unwise to assume inflation isn’t a future reality. And it could get here sooner, and soar higher, than many think.