Should your portfolio change with rising rates?
Nisreen Mamaji: Silver’s fortunes are more tied to the economic cycle, due to greater industrial use.
If you look at where the money is going, the allocation to industrials is almost 50.7%, and to jewelry it’s only 17.8%; silverware is only 4.2%. Basically, the bulk comes from industrial use.
The electric vehicles and automation industries are poised to scale with a CAGR of almost 22% over the period 2021 to 2025. So there is a use for the money. For solar energy, there is a use for silver, for 5G deployment as well as for semiconductors, cables, chips and fuses. The photograph has about 2.8%. So if you consider the bulk of the use of silver, it is towards industry, while 80% of gold is only for jewelry. Industrial demand will pick up and so, of course, there is a role for silver and silver ETFs.
Second, when the economy takes off, silver will rise more than gold. So when inflation is on the rise, silver will go higher than gold because silver is considered a slightly better inflation hedge than gold.
On the supply and demand side, silver prices are more reactive than gold prices. Most central governments, pension funds and large institutional investors will hold large gold reserves. Therefore, it gives stability to gold prices, but it is not affected by economic decisions.
Silver also has a very low positive correlation with stocks, bonds, commodities, and so as a diversifier gold would be a good instrument to hold.
Keeping these two points of view in mind, in the longer term, if industrial use is going to pick up for silver, then we certainly need to keep an open mind and introduce some amount of silver, either under a multi-asset form, or in the form of ETFs, vis-à-vis – vis-à-vis gold, which has been our traditional hedging instrument.