Can gold & silver sparkle amid shifting trends?

GOLD AND SILVER have different primary uses. Gold is used as a safe-haven asset, an inflation hedge, jewellery, and a portfolio diversifier due to its low correlation with other assets.

- JANAK RAJ

Silver is primarily used in industrial applications (such as electronics, photo-voltaics, and batteries).

It is also used for jewellery and investment, but significantly less than gold. Gold prices are driven, among others, by inflation concerns, though a large purchase by central banks has buttressed them in recent years. Silver price is more closely tied to broader economic conditions due to its industrial uses.

The different uses of the two are reflected in the demand. According to the World Gold Council and the Silver Institute, 44% of the annual demand for gold is for investment (including 14% by central banks), 49% for jewellery, and 7% for industrial use. In contrast, 58% of annual silver demand is for industrial use, 27% for jewellery, and 14% for investment. (In 1999, photography absorbed 37% of silver supply; now it has fallen to only about 2%).

Gold and silver prices have risen sharply over the last year. Though the duo mostly moved together post-World War II, there have been three structural breaks.

Between 1945 and 1971, the Bretton Woods system held gold prices stable, while the US Treasury's management ensured silver prices were steady too. But silver prices began to surge in the mid-1960s as the US government reduced coin silver content in 1965, increasing demand for industry and investment. The cornering of the silver market by the Hunt brothers in the late 1960s further boosted prices.