The divisive nature of this election has introduced a lot of uncertainty into markets across the board. Precious metals and commodities are not totally immune to market insecurity, but there are other factors at play in commodity pricing, a fact that is particularly true for silver and gold.
We have previously discussed the potential for gold to gain ground, regardless of which candidate ends up winning the election. Due to the very long federal budget cycles, the near-term currency policy and the interest rate environment will not be significantly altered for nearly a decade, regardless of which party occupies the White House. Due to those currency and budget constraints, which are already baked into market pricing, the next decade will present significant upside potential for both precious metals. This upside potential is particularly significant for silver for several reasons.
Silver Tracks with Gold
Silver’s place as a precious metal, alongside gold and platinum, means that as gold moves higher, it will likely move higher along with it. Roughly eighty percent of the time, silver and gold prices move in lockstep with one another, though silver prices tend to exhibit more pronounced price swings. Even though there are differences in size of the price swings, a bright future for one historically brings about a bright future for the other as well.
Silver’s dual nature as both a precious metal and lunch bucket working class industrial metal means demand can spike when certain segments of the economy do well. Two of the larger industrial users are in electronics and medicine. In the electronics field, a lot of silver goes into solar panels.
Solar panel demand grew by nearly 200% this year in some parts of the world. Demand for solar has increased both in urban and rural areas and rising demand for solar panels will definitely translate into increased demand for silver. Along with solar will come a new generation of energy efficient appliances, all of which will contain a large quantity of silver solder.
It’s also worth noting that every computer, tablet, cell phone and flat screen TV contains the gray metal. It would be hard to find a more in-demand retail category than consumer electronics, and with silver’s unmatched conductivity, its role is crucial.
A Medical Silver Bullet
It comes as a surprise to many that one of the growing industrial uses of silver is in medicine. We’ve long known about its antibacterial qualities from the days when wagon trains headed west would drop a couple silver dollars into water casks to keep their drinking water fresh. The precious metal can also be incorporated into antimicrobial creams, bandages, surgical instruments and even woven into clothing. With the recent news that nasty superbugs can be transmitted between patients on nurse’s uniforms, look for the demand to spike as manufacturers turn to silver to address the issue.
With both demand and government policy providing lift to prices, it might come as a surprise to find out silver performed poorly in the month of October. That is proof only that the same uncertainty gripping equity markets can spill over into commodities. Depressed economic activity ahead of the election also depresses demand for goods and services. The key to smart investing is being able to see past the anxious near-term market and invest for the future.