In the investment sweepstakes, silver has always been regarded as the poor cousin of its more glitzy relative — gold. Therefore, can silver deliver in a year where gold is out of favour?
Gold and silver move in a lockstep with a correlation of 0.8-0.9. But, in times of an economic recession, silver behaves more as a commodity rather than as a precious metal. Take, for instance, the white metals’ behaviour in 2011. That year, though gold did well (up 11 per cent), silver prices corrected (down 9 per cent) tracking industrial metals. Silver’s correlation with gold dropped to a low of 0.3 that year. The year 2008 is also a case in point. In 2008, when the US economy slipped into recession, gold closed the year with a 1 per cent return, but silver dropped 3 per cent.
However, in good times of the economy, silver prices rise faster than gold on industrial demand. In 2012, economic revival hopes saw silver surge out of the gate with a 5 per cent return even as gold made only a 2 per cent return. Copper gave a return of 4 per cent that year.
2013 was an unusual year — havens didn’t do well and industrial metals too faced heat. But now it looks like assets that play on global economic recovery may again do well. Silver may move in the direction of industrial metals.
Technically, the white metal could go as high as $24.25/ounce. MCX Silver (Rs 45,136/1000 gm) can go to Rs 49,000 and if volumes support even rise to Rs 51,420. However, one risk that stays is the failure of economic recovery. If this happens, silver would have lost more than gold at the end of the year, but it would have fallen less steeply than copper.
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