Silver can generate 15-20% returns, say expert agencies: Know why

Kolkata: The surge in silver prices can put gold to shame. Buoyed by two strong pulls, safe-haven investment demand and expanding demand from modern industries, silver is expected to maintain its bull run, a report from Client Associates, a wealth advisory firm has stated. The demand for gold has traditionally been defined as hedge against inflation and volatility besides apart from the jewellery segment.

In a recent report, Citi Group analysts said that silver price could appreciate by 13% and gold can drop  by 25% this year.

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The biggest tailwind for the white metal is that it has overcome the tag of a second-fiddle existence as a safe-haven asset in the shadow of gold. It is an asset class which is perhaps in greater demand from different industrial sectors than the traditional domestic, jewellery or investor sectors.

The boost to silver comes from the emerging industrial sectors. These are renewable energy such as solar energy, electric vehicles, semiconductors and 5G electronics. While the demand of silver is constantly rising since each of these sectors are expanding sectors, the supply of silver is facing constraints. According to reports, there is a deficit in supply compared to the demand globally and this happening for the fourth year in a row in 2024. In 2024, silver supply rose by 1.7% (year-on-year) in the world.

The supply was estimated at 1,015.1 million ounces, whereas demand stood at 1,160.1 million ounces and a deficit of supply to the tune of 149 million ounces was recorded. Industrial demand jumped by 3.6% creating the shortage. From 2016 to 2024, the demand of silver in the world rose by a compounded annual growth rate of 2%. It is against this background that Client Associates has stated the emerging position of silver as a strategic asset which fulfils a dual role.

Gold to silver ratio is an useful metric. It indicates how many units of silver are required to purchase one unit of gold. It is calculated by simply dividing the price of one unit of gold by the price of one unit of silver.

This ratio is at 90 now. The long-term average of the gold-silver ratio is 68, which means gold is unusually overpriced now and silver is undervalued in comparison. Therefore, its is expected to rise, say analysts. They also point out that silver has shown lower correlation with Indian equity indices stocks and moderate correlation with gold. Therefore, equity investors are advised to invest in silver to diversify their portfolio.

However, there are a few risks of investing in silver as well. Client Associates has warned that if the mining output rises, there demand could be satiated. Also, the demand from industry can slowdown if there is sluggishness in the industrial sectors where there is a lot of demand of the white metal. If technological breakthroughs can come up with substitutes of silver in renewable energy and electronics, silver could suffer from lower demand.