Even in the 21st century, so far categorized by recessions and erratic markets, precious metals spent years hardly moving, as investors bet big on tech and growth stocks and avoided what have historically been considered safe havens. But now, typically boring hard assets, such as precious metals, are moving with the fury of meme stocks.
First it was gold, which recently topped $5,000 per ounce. But now silver has also ripped higher and recently topped $100 per ounce. The iShares Silver Trust (SLV 1.83%) has rocketed nearly 265% higher in the past year. How high can silver go after this parabolic run, assuming it recovers in the near future after today's plunge? The answer may surprise you.
Why silver has performed so well
Whether for fundamental reasons or not, silver has become a new retail favorite. On Jan. 26, retail investors collectively purchased $171 million in the iShares Silver Trust, according to the market research firm Vanda Track, as reported by CNBC. This is the largest-ever inflow into silver in a single day, nearly doubling the previous record set in 2021 during the "silver squeeze."
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The fact that silver is following in gold's footsteps is quite normal, as silver prices have historically lagged gold's during precious metal bull markets. Both are viewed as safe havens against inflation, geopolitical tensions, and economic instability, all of which are prevalent in today's environment.
In recent years, there have been extreme inflation, several major foreign conflicts, and concerns about the U.S. economy. Mounting U.S. government debt and money printing, which have ultimately injected trillions into the U.S. economy, have raised concerns about the U.S. fiscal situation and the possibility that the dollar may lose significant value. All of these have made the conditions ripe for a rally in precious metals.
But silver may have even been better positioned than gold. Unlike gold, silver has industrial uses and is a common component in solar panels and electronics. Experts have also noted that, in recent years, there has been a shortage of silver. Last November, the U.S. Department of the Interior added silver to its list of critical minerals.
Can silver make new all-time highs?
While many market strategists and analysts expected silver to follow gold and rally, they have been caught off guard by the intensity of the move. Part of the surprise likely came from retail interest, according to Bank of America strategist Michael Widmer in a recent research note.
Widmer said that retail investors have been influenced by concerns about a weaker U.S. dollar, as well as "meme-driven narratives that frame silver as 'real money' and a hedge against systemic risk." He also said that moves like this with so much volatility are also typically followed by corrections. On Friday, gold and silver both plunged, with silver falling 20% to about $93 per ounce, and gold slipping below $5,000 per ounce.
Former JPMorgan Chase chief market strategist Marko Kolanovic sees silver's price getting cut in half and ending like most big speculative trades. Widmer also believes a fair price for silver is roughly $60 per ounce.
NYSEMKT: SLV
Key Data Points
However, there are scenarios in which silver could rebound and make new all-time highs. For instance, while it's not his base case, Widmer theorized that silver could hit $170 per ounce if retail investors keep increasing exposure to the commodity at the same pace that they have been.
Analysts at Citigroup, led by Max Layton, the bank's global head of commodities research, are also tactically bullish on silver, with a price target of $150 per ounce over the next three months, partly due to retail excitement. Layton also noted that silver, relative to gold, doesn't look expensive historically. With gold trading at $5,000 per ounce and silver around $100, the gold-to-silver ratio is about 50. But if the ratio returns to a low of 32, as in 2011, that could mean a silver price of $170 per ounce.
Regardless of what happens, investors can have some exposure to silver, although I wouldn't take a large position. Instead, if you're a believer in the precious metals trade, the best move is likely to allocate about 5% of your portfolio to a basket of precious metals and hold them for the long term. Don't try to trade over the short term.
