Can a hint of silver find place in your precious metals strategy?

Silver can deliver short-term gains but is more volatile than gold; limit exposure to 2-4% due to its inherent risks

- Jash Kriplani

Gold has long held the spotlight, but silver is quietly carving out its moment, wooing investors with its strong returns and rising industrial demand.

Over the past year, silver funds have surged about 77% on an average, and gained 35% over three years, outpacing gold funds, which returned 61% and 32%, respectively.

A mix of industrial demand, safe-haven buying, and persistent supply deficits has fuelled the rally. Silver’s growing use in electric vehicles, solar panels and electronics, coupled with disruptions at major copper mines where it is produced as a byproduct, has tightened supply.

The surge in prices has pushed silver exchange-traded funds of several fund houses to trade at premiums of up to 18% last week compared with their indicative net asset values (iNAVs), which reflect the actual value of the silver held in the fund. In simple terms, investors were paying more than what the underlying silver was officially worth due to supply constraints. Fund managers see room for further gains in the near to medium term, but warn that the metal’s volatility and dependence on industrial demand make it a tricky bet for investors chasing recent returns.

Dual drivers

Silver prices are being driven by two main factors: safe-haven demand and industrial use. Vikram Dhawan, fund manager, commodities, Nippon Life India Asset Management, said roughly two-third of silver demand comes from its industrial usage and one-third is for ornaments, small bars, coins or investment demand.

The metal tends to follow gold during periods of global uncertainty, thanks to its safe-haven appeal. At the same time, it benefits when industrial demand exceeds supply, giving it a unique dual role in the market.