Is Silver Ready To Shine? This Physical Trust Offers Exposure To Physical Bullion

While the equities market is still struggling to adapt to the unique challenges of the current economic paradigm, the precious metals market, led by gold, has dominated proceedings. Since the start of this year, gold prices have surged past the $3,400 mark, setting an all-time record. Nevertheless, no asset class is immune to market sentiment’s natural ebb and flow. It's here that the other precious metal, silver, may have its moment to shine.

Much like gold, silver commands a higher relative value compared to base metals due to a lack of availability. For example, silver's crustal abundance is approximately 0.07 parts per million (ppm). In sharp contrast, the crustal abundance of copper stands at around 70 ppm. Simultaneously, silver offers unique attributes that make it a critical asset for various industries and technologies.

Silver is often subject to more uncertainty than gold as a hybrid asset featuring some of the monetary demand profile of gold but also the broad utility of core base metals. Still, it tends to follow gold's trajectory. In certain cases, it has outperformed its premium counterpart.

Given the historical precedents, the above framework raises the question: Could silver now be a strategically prudent trade, especially for investors who feel that they missed the gold wave? Fundamentally, the evidence makes an intriguing case for why silver should be closely watched for the remainder of this year.

Deciphering The Historical Cadence Of Silver's Demand Profile

Observed market phenomena, such as the January Effect*, demonstrate that the equities sector has its own unique rhythm or cadence. Silver, on the other hand, has its own personality, potentially enabling investors who understand its undulations to extract performance.

Historically, at the beginning of a rally in precious metals, silver often lags behind gold, particularly during "flight-to-safety" events. Much of this dynamic centers on gold representing a universal store of value. The metal has a rich history of being a cornerstone of personal finance strategies, acting as a hedge against inflation and economic uncertainty. Combined with its social cachet, few (if any) assets have matched its safe-haven status.

Subsequently, when the broader economy encounters turmoil, it's often gold that rises first, while silver lags behind. As The Wall Street Journal pointed out, the same trend is on tap right now. Over the past 12 months, gold has gained approximately 41%. On the other hand, silver, while certainly no slouch, is noticeably in a distant second place, up about 23% during the same time frame.

Still, the WSJ points the finger at silver's "split personality." True, silver may have a similar  safe-haven appeal that has likely driven gold prices, such as mitigation against inflation and socially tumultuous events. On the flipside, silver offers more industrial utility, featured in key components involving electronics and solar panels. This exposure to economic sensitivity makes silver susceptible to higher volatility during certain sentiment regimes.

However, market precedents suggest that eventually, silver could potentially take the lead role in terms of overall relative precious metals performance.

During the subsequent 12 months following the 2008 financial crisis, silver gained 81% versus "only" 44% for gold. When a market panic erupted in early 2016, silver also printed a dramatic outperformance relative to gold. A similar situation occurred in 2020 when silver outperformed gold significantly after the March sell off.

The gold-to-silver ratio is the key to recognizing the value of silver relative to its more well-known peer; that is, the number of silver ounces required to buy one ounce of gold. During this year's record metals rally, gold cost more than 100 times silver on a per-ounce basis, though it settled down slightly to 98 times recently.

The WSJ noted that the average gold-to-silver ratio over the last 30 years has been 68. Furthermore, the news agency remarked that the only other time this ratio was so out of order was during the onset of the COVID-19 crisis, when the level hit 113.

It's worth mentioning that in the 12 months following that outbreak, silver prices popped 73% while gold gained just 8%.

Everyday Utility Priced At A Relative Discount?

While gold prices have reached phenomenal heights, the robust success has also led to uneasiness among many investors. Generally, markets don't rise linearly. After periods of intense outperformance, it's not uncommon for once-hot sectors to encounter decelerative challenges. On the other hand, with silver arguably not having had the opportunity to flex its muscles fully, it still may hold the potential for outsized returns.

According to Maria Smirnova, senior portfolio manager and chief investment officer at Sprott Asset Management, "Silver's future shines bright. Given continued deficits resulting from stagnant supply and exploding industrial demand, above-ground stocks have declined in recent years. We do not see this fundamental picture changing, since mine supply is challenged with few new mines in the pipeline while silver's unique physical properties make it indispensable in a multitude of applications. This fundamental picture makes the outlook positive for the silver price, and we would expect it to go much higher if a breakout occurs."

From a utilitarian framework, silver has many underlying characteristics that are indispensable. Common uses include the following:

• Jewelry and Silverware: Silver has long been prized for its application in jewelry and tableware for centuries, thanks to its luster, malleability and antimicrobial properties.
• Electronics: Silver is the most conductive metal and is ideal for electrical contacts, switches and printed circuit boards in devices like smartphones, computers and televisions.
• Photovoltaics: Silver is also a key component in solar panels, thanks to its conductive properties, which enhance the efficiency of converting sunlight into electricity.
• Medicine: Silver isn't just pretty to look at. Its antimicrobial properties are leveraged for various medical applications, including wound dressings, medical devices and coatings for surgical instruments.
• Catalysts and Chemicals: Silver plays an important role in the manufacturing of plastics, resins and other industrial products as a catalyst for the production of ethylene oxide and formaldehyde.

Stated differently, as long as the overall economy adjusts adequately to the new paradigm, especially as it relates to global trade policies, silver may be in a differentiated position to capitalize on investor sentiment, thanks largely to its hybrid nature. Sprott Asset Management says silver has absorbed much of the volatility stemming from the Trump administration's tariffs.

With many high-level headwinds already baked in, silver could potentially soon be poised to initiate an upward trajectory. If so, it's the sidekick that could be the asset to watch closely for the remainder of this year.

You Don't Own It Until You Hold It

Although the potential explosiveness of the silver price relative to gold excites many precious metal investors, the vanguard participants of this sector will often focus on the core fundamentals of safe-haven assets, namely, the transparent custody of real assets.

For many advocates of the precious metals space, nothing beats the security of physical gold and silver bullion. Because of its physical representation, its supply cannot be manipulated in the way that many securitized products are vulnerable to. On the other hand, physical ownership of precious metals, particularly silver, can be cumbersome because of their weight and density. The cost of protecting the assets can also be onerous.

A happy middle ground is the Sprott Physical Silver Trust (NYSE:PSLV). PSLV distinguishes itself from other funds thanks to its backing by real, allocated silver bars. Furthermore, each bar is securely stored in audited vaults, with regular third-party inspections to maintain transparency. In fact, PSLV is structured so that investors can have maximum confidence that they have a direct interest in silver.

PSLV’s clarity and transparency are critical for investors who desire the security of real assets but without the hassle of physical ownership.

Beyond the backing of real bullion, PSLV provides another differentiator: redemption rights for large position holders. Investors meeting certain thresholds can take delivery of physical silver, a feature rarely offered by silver funds. During periods of uncertainty, this flexibility can offer additional confidence.

Silver's Strategic Potential In 2025

Silver offers a rare combination of value and utility as the global economy continues to wrestle with uncertainty. It's a metal that can thrive on both fear and growth, with industrial demand potentially providing a backbone even when sentiment wavers. Silver may be the next asset to watch for those who believe they've missed the gold rally or simply want a more balanced opportunity.

*The January Effect is the tendency for stock prices—especially small-cap stocks—to rise in January, often more than in other months. This pattern is believed to stem from investors selling stocks in December for tax-loss harvesting and then repurchasing them in the new year, increasing demand.

Featured image by lecho0047 on Pixabay.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.

Important Disclosures

Sprott Physical Silver Trust (the "Trust") is a closed-end fund established under the laws of the Province of Ontario in Canada. The Trust is available to U.S. investors by way of a listing on the NYSE Arca pursuant to the U.S. Securities Exchange Act of 1934. The Trust is not registered as an investment company under the U.S. Investment Company Act of 1940.

The Trust is generally exposed to the multiple risks that have been identified and described in the  prospectus. Please refer to the prospectus for a description of these risks. Relative to other sectors, precious metals and natural resources investments have higher headline risk and are more sensitive to changes in economic data, political or regulatory events, and underlying commodity price fluctuations. Risks related to extraction, storage, and liquidity should also be considered.

Gold and precious metals are referred to with terms of art like store of value, safe haven, and safe asset. These terms should not be construed to guarantee any form of investment safety. While "safe" assets like gold, Treasuries, money market funds, and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.

All data is in U.S. dollars unless otherwise noted. 

Past performance is not an indication of future results. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action. Sprott Asset Management LP is the investment manager to the Trust. Important information about the Trust, including the investment objectives and strategies, applicable management fees, and expenses, is contained in the prospectus. Please read the prospectus carefully before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or operational charges or income taxes payable by any unitholder that would have reduced returns. You will usually pay brokerage fees to your dealer if you purchase or sell units of the Trusts on the Toronto Stock Exchange ("TSX") or the New York Stock Exchange ("NYSE"). If the units are purchased or sold on the TSX or the NYSE, investors may pay more than the current net asset value when buying units or shares of the Trusts and may receive less than the current net asset value when selling them. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.