After a strong start to the year, the price of silver has turned negative. Furthermore, it has been underperforming gold despite the fact that we will often see silver outperform gold in a bull market. While it is hard to say why the price of silver is underperforming, it could be due to the fact that silver is more economically sensitive than gold, and economically sensitive assets have been underperforming as of late.
Silver has numerous industrial usages, from photovoltaic cells in solar panels to everyday electronic devices — the device you are using to read this article has at least some silver in it. The underperformance could also be due to waning Indian demand. Last year, Indian imports of gold declined because the government imposed tariffs with the intent to restrict gold imports. As a result Indians simply switched to buying silver, and Indian silver demand soared. As the tariffs are reduced gold demand is rising, and this is cannibalizing silver demand.
Despite the weak performance of silver, I suspect that at some point the price of silver will begin to outperform gold, and I suspect that it can begin to perform well even in a weak economic environment. Silver still plays a crucial monetary role, and as poorer emerging nations become more affluent — especially in Asia — investors will demand precious metals. With gold out of reach, investors will turn to silver.