Despite its precious metal status, silver has consistently lagged behind gold in recent years. While gold prices have seen a year-to-date increase of 12%, silver has only managed a rise of 7%.
Investors and traders are scratching their heads, questioning why silver hasn't kept pace with its golden counterpart.
From theories of market manipulation to the burgeoning cryptocurrency space, several hypotheses have been put forth.
But the real question lingers—should traders start considering silver as a worthy investment? Let's dig into the reasons behind silver's underperformance and examine whether a shift in strategy is warranted.
The Complex Relationship Between Silver and Gold
Contrary to popular belief, the correlation between gold and silver isn't as firm as many assume.
While both are precious metals, they serve different functions in the financial markets and real-world applications.
Gold is predominantly a reserve currency, held in vast amounts by central banks to stabilise financial systems and hedge against inflation.
On the other hand, silver serves a dual purpose—it's not just a store of value but also an industrial metal, significantly used in various manufacturing processes.
"Gold is like the big brother who takes all the attention, while silver is often the overlooked younger sibling with immense untapped potential."
—Peter Schiff, economist and investment advisor
Why Is Silver More Volatile than Gold?
Silver's significant industrial utility has made it more susceptible to economic fluctuations. According to The Silver Institute, over half of all silver consumption is for industrial purposes, compared to a mere 17% for gold.
A decline in industrial demand, therefore, has a more pronounced impact on silver prices. Additionally, silver shows a positive correlation with key economic indicators like oil and copper prices, making it sensitive to the broader economic climate.
The Catalysts Weighing on Silver
Several factors are contributing to silver's subpar performance:
Declining Industrial Demand: A drop in the usage of silver in photography and other industrial applications has negatively affected its price.
Rise of Cryptocurrencies: With assets like Bitcoin and Ethereum offering potentially high returns, some investors who would have traditionally invested in silver are looking elsewhere.
Market Manipulation: While not definitively proven, theories suggest that market manipulation could be distorting silver prices.
"In an ever-changing market landscape, silver remains the underdog whose potential is yet to be fully understood or appreciated." —Lyn Alden, financial analyst
Opportunities on the Horizon
Despite these challenges, there are signals indicating a potential turnaround for silver. An uptick in the global economy could bolster industrial demand, benefiting silver prices.
Moves to regulate the silver market could also restore its market mechanism, leading to lower volatility.
As renewable energy initiatives expand, the need for photovoltaic cells, which use silver, is likely to increase, further boosting demand for the metal.
Practical Guidelines for Investors
Diversify: Don't place all your eggs in one basket. Consider balancing your portfolio with some silver assets.
Stay Updated: Monitor global economic trends, as they can significantly impact industrial demand for silver.
Regulatory Watch: Keep an eye on any new regulations that could influence silver prices.
Leverage and Margin in XAG/USD Trading on MT4
Trading XAG/USD on MT4: A Quick Guide
Download and install MT4 from a credible broker.
Log in and find XAG/USD in the Market Watch Panel.
Open a chart to start trading.
Unparalleled Leverage Opportunities
Silver offers high volatility, which, while a double-edged sword, offers traders the opportunity for considerable gains through leverage.
Unlike gold, smaller market size and liquidity constraints mean that silver can experience sharper price movements, which, when leveraged correctly, could result in outsized profits.
"Volatility is a trader's best friend, and silver's volatility is unmatched in the precious metals market." —Mark Douglas, trading psychologist
Why Higher Leverage?
Magnifies Returns: More substantial profits if the market favours you.
Capital Efficiency: Diversify without locking up significant capital.
Hedging: More efficient hedging strategies.
"MT4’s interface allows traders to focus on strategies, which is especially useful when applying leverage." —Steve Nison, trading expert
Importance of Increased Margin with Wider Spreads
Flexibility: Hold positions longer, even when spreads widen.
Risk Management: Greater leeway for managing risk, crucial in high-spread conditions.
"Understanding leverage and margin is essential for risk management, especially when spreads are high." —Dr. Alexander Elder, trading expert
Steps for Trading XAG/USD on MT4
Assess your risk tolerance.
Monitor your broker’s margin call levels.
Keep an eye on real-time spreads.
Start with smaller lot sizes to mitigate risks.
While silver has faced headwinds due to declining industrial demand and other external factors, it isn't a write-off.
Underlying market conditions suggest that its fortunes could change, offering a promising investment avenue.
As economic activity picks up and regulatory measures are put in place, is the silver price likely to experience less volatility and could it offer an attractive risk-to-reward ratio for savvy investors and traders.
Call to Action
Considering investing or trading in silver? Now may be the time to revisit your portfolio strategy.
Precious Metals: Naturally occurring metals that are rare and high in economic value.
Reserve Currency: A foreign currency held in significant quantities by governments to facilitate international trade.
Photovoltaic Cells: Devices that convert sunlight into electricity, commonly used in solar panels.
Market Manipulation: Any act conducted with the intention to artificially inflate or deflate the price of a security or otherwise influence the behaviour of the market for personal gain.
Risk Disclaimer: As with all investments, your capital is at risk. Investments can fall and rise and you may get back less than you invested.