Can Silver Bullion Outshine Gold This Year?

Silver has had an interesting year so far in 2023. After a flat 2021, silver started 2022 strong before sliding backwards for much of the year.

Now, in 2024, silver bullion has seen a resurgence as investors bet on continued economic uncertainty and the possibility of a recession, leading to safe-haven buying.

In this article, we’ll analyse why silver bullion could outperform gold this year. We’ll look at key drivers like industrial and investment demand and how to trade silver with contracts for differences (CFDs).

Bull Case for Silver Bullion

Silver has several dynamics working in its favour as we move through 2024. Here are some of the biggest reasons analysts see upside potential:

Growing Industrial Demand

Unlike gold, silver has extensive industrial uses. Over 50% of total physical demand comes from industrial applications like electronics, solar panels, and electric vehicles.

With the ongoing transition to clean energy and EVs, silver demand could receive a significant boost. If the global economy can avoid recession, industrial silver consumption should remain strong.

Supply Deficits on the Horizon

The silver bullion market has been running supply deficits for several years now. In 2022, the deficit hit a decade-high of over 200 million ounces.

Mine production peaked in 2016 and has flattened out since. At the same time, demand continues to grow steadily. This tightening fundamental backdrop could drive silver prices higher.

High Beta to Gold

Silver has a long-standing track record of outperforming gold in bull and underperforming bear markets. This high beta comes from silver’s smaller market, which makes it more volatile.

If gold embarks on a new bull run in 2024, history says silver will potentially notch even higher returns.

Undervalued Relative to Gold

One way to measure silver’s potential upside is to look at the gold-to-silver ratio. This ratio shows how many ounces of silver are needed to buy one ounce of gold. The long-run average is around 60.

Today, that ratio is around 80, indicating that silver looks historically cheaper than gold. Silver bullion will significantly outperform if the ratio falls back to 60 this year.

Check out this suggested article: Silver Prices - An Investor’s Guide

Bear Case for Silver Bullion

However, it’s not all sunshine for silver bullion. Here are the major factors that could hamper performance or lead silver to underperform gold in 2024:

Rate Hikes from the Federal Reserve

After fighting inflation in 2023 with substantial rate hikes, the Fed seems to have claimed victory, with inflation trending down. However, they are still projected to implement multiple additional 25 basis point rate increases over the next 6-12 months.

Rising rates boost the dollar, depress commodity prices, and create recessionary pressures – all bad news for precious metals, especially silver.

Recession Leading Investors to Cash

While silver should catch a bid as a haven asset if the global economy enters recession, an economic downturn that is too deep can negatively affect metals as investors move to cash.

Demand destruction from key silver end-use categories can also ramp up. Although the odds of a recession have drifted lower recently, they remain elevated going into 2024.

Rising Bond Yields

Another side effect of Fed tightening through 2023 was higher Treasury yields. Higher bond yields increase the opportunity cost of holding non-yielding assets like precious metals.

Real rates drove much of the bull market in gold and silver over the past two years. If they reverse higher due to the Fed’s quantitative tightening, it spells trouble for silver.

Stronger Dollar Weighing on Commodities

The US dollar’s massive rally was a major headwind for commodities for much of 2022 before topping out.

Unfortunately, most analysts see the dollar maintaining strength heading into 2024 due to the US economy’s relative outperformance. A stronger dollar depresses commodities broadly, including precious metals.

Price Levels to Watch

With silver seeing bullish and bearish forces entering 2024, technical price levels could be essential in determining direction.

Here are the key levels traders are watching:

Resistance Levels

• $25 – Psychological barrier, 2022 high
• $30 – 2021 peak

Support Levels

• $17 – 2022 low
• $14 – March 2020 bottom

A break above $25, especially if gold can also break out from its 2022 highs, could signal a bull market underway. Conversely, a drop below $17 would violate 2022 support and likely open up a test of the $14 level not seen since the pandemic crash.

How Much Could Silver Rise Versus Gold?

If silver can catch a favourable wind, how much could it outperform gold this year? Here are the upside targets analysts have forecast:

Gold-to-Silver Ratio

• Falls to 65: 1x short-term target from the current ratio of ~80
• Falls to 60: Long-run historical average ratio
• 50% outperformance of silver over gold

Silver Price Forecasts with Ratio Decline

• $25+: At 65 ratio with current gold prices
• $30+: If gold rises 10% in tandem to $2,000/oz at a lower ratio

You might find this article thought-provoking: Is Silver Considered To Be A Reliable Store Of Value?

Trade Silver through CFDs

For investors looking to gain exposure to silver prices without owning physical bullion, trading silver CFDs (contracts for difference) offers an accessible alternative.

Silver CFDs allow traders to speculate on silver price moves in both directions. You take a buy or sell position depending on whether you expect silver to rise or fall.

Of course, leverage also compounds losses if silver moves against your position. However, for seasoned traders comfortable managing risk, silver CFDs could provide an efficient way to potentially capitalise on expected swings in silver prices - whether a breakout or breakdown scenario plays out.

You might also like to read: How to Trade Commodities as a Beginner Trader

Conclusion: Silver Could Break Higher but Needs Some Help

Silver bullion enters 2024 with a likely bull case due to tightening supply and sustained industrial demand. However, some assistance from the economy and Fed policy will likely be required for prices to catch fire to the upside.

Key inputs like manufacturing activity, investment inflows, production levels, and the monetary policy backdrop will determine just how bright silver shines this year – or whether bears overtake bullion yet again.

The stage is set for an interesting precious metals battle between silver and gold over the next 12 months.

Ready to trade with markets.com? Creating an account is easy!

“When considering “CFDs” for trading and price predictions, remember that trading CFDs involves a significant risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be considered investment advice.”