Record high gold prices are in the spotlight — but it’s really the yellow metal’s poorer cousin, silver, that’s outperforming in the price rally.
Spot silver prices have gained 35% this year-to-date to 12-year-highs. They’re now around $32 an ounce.
In comparison, spot gold prices are at around $2,350 per ounce, but have just gained 14% so far this year.
While gold’s bull run has been driven by central banks’ desire to diversify their assets and a consumer flight to safety amid macroeconomic uncertainties — particularly in China — silver’s dazzling performance this year is underpinned by industrial demand.
To be sure, there are industrial uses for gold too, but as Morgan Stanley explained, half of all silver is used in heavy industry and technology.
“The fact that silver has been outshining gold in recent weeks is due mostly to its application in manufacturing,” wrote Daniela Hathorn, a senior market analyst at online trading platform Capital.com, on Tuesday.
“Whilst it also attracts safe haven demand — even though not as much as its yellow counterpart — its industrial demand has been driving the moves higher given the resilience in manufacturing activity in the US,” added Hathorn.
Silver is used in solar panels and also in general industry
In particular, silver is a key raw material for solar panels. They’re in demand amid the world’s transition to sustainable energy, and China has raced to manufacture them.
China’s silver imports hit a three-year high of 390 tons in December before falling back to over 340 tons in April — well above the monthly five-year average of 310 tons, according to Bloomberg on Wednesday.
China’s demand for silver is so strong that domestic prices of the precious metal are higher than international prices, which is likely to send more imports to the East Asian nation in the coming weeks, per Bloomberg.
Global demand is also set to outstrip supply for the fourth straight year in 2024, according to the Silver Institute, an industry association.
Other than solar panels, silver is also used in electronics, as catalysts in industrial processes, and in car parts.
China is overproducing solar panels
Solar panels are a sore spot between the West and China.
The US, Europe, and their allies accuse China of unfair trade practices, including making and exporting so many solar panels — among other goods — that it’s impacting their economies.
Beijing has pushed back on the West’s claims of overcapacity, saying they are aimed at containing China’s economic growth.
To be sure, there isn’t overcapacity and overproduction in all sectors of China’s industry, as a Bloomberg analysis in April found. The problem is mainly in areas where China already had the upper hand over the West, such as lower-tech goods and building materials.
China’s production of solar panels and batteries also exceeds the demand for them. But the competition doesn’t extend to a key emerging area of contention: electric vehicles.
The West’s hawkish moves toward China now follow the East Asian giant’s breakneck industrialization to its position as the factory of the world over the past four decades. That quick ascendance wiped out jobs and decimated communities elsewhere — a phenomenon three researchers termed “China shock.”
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