Monday's Surprise Winner Outpaced the Soaring Stock Market

Stocks started out the fourth quarter with extreme optimism that the worst could be over for the market. After a terrible first three quarters of the year, the Dow Jones Industrial Average (^DJI 0.06%), S&P 500 (^GSPC -0.22%), and Nasdaq Composite (^IXIC -0.52%) were all up between 2% and 3%.

Data source: Yahoo! Finance.

As you'd expect on an up market day, there were plenty of stocks that contributed to Wall Street's gains. However, one of the most surprising assets to post substantial gains was silver, which contributed to strength not only in the precious metal itself but also in the companies that mine it. With traits that span both precious and industrial metals, silver is an interesting gauge of macroeconomic optimism at a critical juncture for the financial markets.

Silver tops $20

Gains for silver were particularly impressive. The price of the white metal jumped more  than 8%, or $1.68, to $20.70 per ounce. That move recovered all of silver's losses since early August.

Silver mining stocks saw similarly large gains. First Majestic Silver (AG -1.02%) picked up 10% on the day, with Endeavour Silver (EXK -0.78%) and Coeur Mining (CDE 0.23%) both rising nearly 14%. Gains for precious metals streaming companies, which don't mine metals but provide financing for mining companies, weren't able to match the performance of mining stocks but still moved higher on the day. Wheaton Precious Metals (WPM 0.04%) climbed 4%, while Franco-Nevada (FNV 1.00%) settled for a 2% rise.

Looking for diversification

Silver was just one precious metal that got some attention from investors on Monday. Gold prices moved higher by nearly 2.5%, breaking a recent slump and moving back above $1,700 per ounce. Gains for platinum-group metals were even larger, as platinum prices gained $39 per ounce to approach the $900 mark, and palladium jumped $76 per ounce to $2,170.

But silver's outsized percentage gain indicates that its move deserves special consideration. That largely stems from the fact that within the precious metals complex, silver stands out with unique characteristics.

All that shines is silver

Silver has historically seen some of the same uses as gold as a store of value. Coinage dating back to ancient times used silver, and the relative rarity of both metals made them extremely useful as forms of money for centuries.

Even as physical forms of money have given way to electronic counterparts, though, silver continues to have value in a wide variety of industrial applications. The white metal's electrical properties make it a useful material for electrical contacts, microprocessors, various computer circuit boards and chips, and camera sensors. Moreover, with the rise of the electric vehicle (EV) industry, many analysts have predicted that silver will see higher demand, as use of the precious metal is higher in EVs than in conventional internal combustion engine vehicles. Photovoltaics are another source of demand for silver.

Because of its range of uses, silver acts as a gauge of two separate things. On one hand, it tends to move roughly in line with gold and other precious metals, reflecting changes in monetary and financial conditions. Yet silver can also rise on its own when industrial business cycles point toward greater strength in manufacturing, especially in key areas that are heavy users of the metal.

A single day doesn't mean anything in terms of whether silver can continue to outperform. However, the day's move is enough to make investors take notice, and if silver keeps rising, it might reflect even greater enthusiasm about the global economy's ability to make it through tough economic conditions without falling into a full-blown recession.