Safe Yet Promising for Growth? The Rediscovery of Silver

Recent Surge in Silver Prices Driven by AI and ESG Industrial Demand
"Better Suited as a Medium- to Long-Term Portfolio Asset Than for Short-Term Speculation"

On January 16, Hana Securities analyzed the recent surge in silver prices, stating, "The structural role of silver within investment portfolios is fundamentally changing." The firm evaluated that, amid shifts in real interest rates and policy uncertainties, silver is re-emerging as a 'hybrid asset'-offering both the appeal of a safe haven and strong price support driven by industrial demand in sectors such as artificial intelligence (AI) and energy.

Lee Youngjoo and Ha Hyungmin, researchers at Hana Securities, published a report titled "Silver: Do Not Evaluate It by Past Standards Anymore," in which they diagnosed that the sharp rise in silver prices since the second half of last year goes beyond a simple rebound of a cyclical asset.

This rally in silver prices began as the long-term value distortion between gold and silver started to be resolved. Over the past 25 years, the average gold-to-silver ratio has remained around 86, but in the first half of last year, silver was so undervalued that the ratio exceeded 100. The report explained, "With global central banks increasing gold purchases and the United States facing a growing fiscal deficit, gold has been re-evaluated as a monetary and political hedge, intensifying capital inflows." It added, "This has accumulated pressure for a normalization of silver's relative value." The report analyzed that the recent rise in silver prices is an initial reaction to the resolution of this relative value distortion.

The report particularly highlighted the structural changes in industrial demand for silver. Whereas silver demand in the past depended on economic cycles, it is now positioned as a key material for technological transformation, including AI data centers, solar panels, and electric vehicle electronic systems. The researchers noted, "The proliferation of AI and the expansion of data centers are accompanied by large-scale investments in power infrastructure, structurally driving up silver demand." They added, "Such demand is difficult to halt, even during economic downturns, due to policy and technological imperatives."

Supply-demand imbalances are also supporting the price increase. Since silver is mainly produced as a byproduct of other metals, it is structurally difficult to rapidly increase supply even when prices rise. Additionally, stricter ESG (Environmental, Social, and Governance) standards are further restricting the development of new mines, which is expected to deepen the supply-demand imbalance through the 2030 energy transition period.

The report also pointed out that the unique 'liquidity illusion' of the silver market can amplify price volatility. In the silver market, paper transactions such as futures and exchange-traded funds (ETFs) far outweigh physical trading. While liquidity may appear abundant under normal circumstances, if industrial demand for physical silver surges, the paper-based market structure could actually lead to extreme price volatility. The report explained, "This recent rise in silver prices has occurred in a market structure dominated by paper transactions, at a time when conditions for physical supply and demand are also shifting."

The researchers advised, "Silver is not a pure safe haven like gold, but at the same time, it is difficult to classify it as a typical cyclical industrial metal." They recommended, "Rather than short-term price speculation, it is more appropriate to approach silver as an asset that complements portfolios over the medium to long term, especially at the intersection of policy changes and industrial transformation."