Silver Investment: Industrial Demand, Market Trends and the Gold Ratio
Explore silver's investment potential through its industrial demand, financial safe-haven attributes, and the gold-silver ratio, featuring insights from Leumi's Yaron Friedman.
When investors look to the precious metals market, their attention is usually captured by gold, which has cemented its status as a premier safe-haven asset during times of economic uncertainty. Silver, by contrast, has often been left in the background. Despite its long history and widespread industrial use, silver lost its crown as the leading precious metal. Yet, it retains unique properties that continue to make it a compelling asset for investors.
The Unique Properties of Silver
To understand silver's market position, one must look back at the significant role it played throughout history.
"We essentially started with silver," says Yaron Friedman, head of research at Leumi's investment division. "Later on, when gold entered the picture and replaced silver in antiquity as the primary and more prestigious currency, silver's status gradually declined. However, it remained dominant until the 20th century, when the gold standard was introduced."
Friedman notes that in many languages, not just Hebrew, the word for "silver" and "money" is identical. This dual usage also appears in French (Argent) and Spanish (Plata), highlighting the deep etymological and historical link between the metal and currency.
Today, silver is primarily utilized in industry, which accounts for over half of global consumption. "It has a fascinating property—it is the best conductor of electricity with very low voltage loss during use," Friedman explains. "Like gold, it is highly durable, but it is much cheaper and very convenient to work with. Therefore, we see silver serving as a raw material in numerous industries, such as green energy, semiconductors, and electronics."
Alongside industrial demand, roughly 20% to 25% of global silver demand stems from financial investments through bullion, coins, exchange-traded funds (ETFs), and index-tracking products. A similar proportion comes from the jewelry and silverware market. According to Friedman, this characteristic gives silver a unique advantage: it benefits from both economic growth trends and financial safe-haven demand during market volatility.
The Gold-Silver Ratio as an Economic Barometer
Due to the distinct traits of precious metals, an economic barometer has evolved over the years based on the ratio between gold and silver prices. "It is customary to say that when the ratio is high—meaning gold's price is exceptionally high relative to silver—it reflects economic anxiety and a risk-off policy," Friedman notes.
"Thus, if the ratio exceeds 80—meaning gold is priced 80 times higher than silver—it serves as an indicator of economic concern, because it signifies that global investors are seeking gold. Why do investors usually look for gold? It has quite a few industrial uses, but its primary function is as a risk-mitigation asset. When this ratio climbs, it points to overwhelming demand for gold."
Friedman points to the onset of the COVID-19 crisis in April 2020, when the ratio surged to 111. "In other words, silver dropped sharply while gold soared, because the world feared that industrial activity was heading for a severe blow," he explains. A reverse picture was seen at the beginning of this current year, when the ratio dropped to around 60 and even below it, as investors sought risk exposure. During that period, strong industrial demand surged, particularly from the semiconductor and broader electronics industries driven by artificial intelligence developments.
However, Friedman notes that the current ratio—hovering around 68—reflects "a point where the market is searching for direction. We are at a juncture where the world is weighing whether to lean more toward industrial growth or toward risk reduction in portfolios. This comes against the backdrop of global economic developments, including events in the Gulf, the blockade of Bab el-Mandeb, and rising inflation and interest rates."
Ways to Invest in Silver
For investors who believe market sentiment will continue to favor silver, Friedman outlines several investment avenues. "There are two primary ways to invest in silver," he explains. "The first and most accessible way is through exchange-traded funds (ETFs). There are several funds that track the price of silver, divided into various types—some invest directly in the underlying asset by purchasing and holding physical silver bullion against the shares, though this is usually done through financial instruments. There are also more sophisticated instruments, such as leveraged ETFs, but these are more suitable for short-term investors and must be handled with caution."
The second route is investing in mining companies. Friedman points out that, surprisingly, there are almost no pure silver mines. "Silver is actually a byproduct of many other metal mines, primarily gold and lead. Therefore, it is very difficult to find 'pure' silver mining companies, and they are usually general mining operations where silver is one of several outputs. Generally, we see giant companies like Rio Tinto and BHP, which operate gold and iron mines, extracting silver as part of their production mix."
