Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Silver Is Plummeting While Gold Holds Steady
Transcript
- Lucas: So gold is sitting near four thousand three hundred and sixty-five dollars an ounce as of this past Friday — down a bit from its highs, but basically still in record territory. Meanwhile, silver has just gotten wrecked. It closed at sixty-nine ten, down more than eight percent in five days. Luna: Eight percent in a week is a serious move. And it's not like silver was cheap before — it had been rallying alongside gold for months. Lucas: Right, and that's exactly what makes this divergence interesting. Through the Spring, both metals were riding the same wave — the Iran situation, inflation concerns, a weaker dollar narrative. But starting around late May, silver broke rank. Luna: What changed? Was it the OPEC+ output hike? That seemed to soften crude, but gold barely flinched. Lucas: That's part of it, but I think the bigger factor is what silver does that gold doesn't: it's an industrial metal. Roughly half of annual silver demand comes from industrial applications — solar panels, electronics, soldering, batteries. And that part of the economy is starting to look shaky. Luna: We've been hearing about a slowdown in manufacturing PMIs globally. The latest ISM manufacturing print in the US was weak again, and Europe is barely treading water. Lucas: Exactly. Silver is catching that downdraft. Meanwhile, gold is purely a monetary and safe-haven play. Its demand drivers are central bank buying, ETF inflows, retail fear — none of which have abated. In fact, central bank gold purchases hit another record in Q1 this year. Luna: So gold is being lifted by the same macro uncertainties that are actually hurting industrial demand for silver. That's a fascinating split. Lucas: And it shows up in the gold-silver ratio. That ratio — the number of silver ounces it takes to buy one ounce of gold — has blown out to over sixty-three. A year ago it was around seventy-five, then it compressed into the high fifties during the silver rally. Now it's widening again. Luna: Historically, a ratio above eighty has marked silver bottoms. But above sixty is still elevated. Are we heading toward another spike? Lucas: Possibly. If industrial recession fears deepen, silver could fall further even if gold stays flat. But there's a speculative angle too. The CFTC commitments of traders report from last week showed that managed money — hedge funds — were net long silver, but they've been slashing those positions aggressively. The last time we saw this kind of liquidation was March 2020. Luna: March 2020 — during the Covid crash. Silver lost like a third of its value in weeks. Lucas: Right. But then it rebounded hard. The question is whether this is a repeat of that pattern — a liquidity-driven selloff that creates a buying opportunity — or something more structural. The difference this time is that industrial demand faces real headwinds, not just a temporary shutdown. Luna: What's your take on the solar angle specifically? Silver is a key component in photovoltaic cells. If solar deployment slows, that's a big chunk of demand gone. Lucas: Solar installations are still growing globally, but the rate of growth has slowed. China's solar manufacturing overcapacity has driven panel prices down, which is good for deployment but terrible for margins. Some smaller manufacturers are cutting production. That directly reduces silver offtake. Luna: And on the supply side, silver mine production has been fairly stable. No major disruptions. Lucas: Exactly. So you have steady supply and softening industrial demand, even as investment demand for gold remains robust. That's a recipe for the kind of divergence we're seeing. Silver is essentially being repriced as an industrial commodity, not a precious one. Luna: Does that mean investors should avoid silver as an inflation hedge? I think a lot of people bought it for that reason. Lucas: It's a mixed hedge. In a pure inflation scenario — where growth holds up and prices rise — silver can outperform gold because the industrial side benefits. But in a stagflation scenario — weak growth, high inflation — silver tends to fall because the industrial drag outweighs the inflation premium. Gold works better in that environment. Luna: And right now the market seems to be pricing in more stagflation risk. GDP forecasts have been trimmed, CPI is still sticky around three and a half percent. Lucas: Right. The April CPI came in at three three two point four, up from the prior month. Core is still elevated. So the Fed can't cut aggressively even if growth slows. That's a stagflation setup, and it's terrible for industrial commodities. Luna: Copper is also down over five percent in the last five days. Silver is behaving a lot like copper right now. Lucas: That's the right comparison. Copper closed at six twenty-eight, down five and a half percent. Silver's eight percent drop is worse, but the direction is the same. Both are saying 'global growth concerns.' Gold is saying 'I don't care, give me safety.' Luna: So if someone wanted to play a rebound in silver, what would they watch? The gold-silver ratio? The PMI data? Lucas: I'd watch industrial production numbers out of China and Germany more than anything. If those show signs of a pickup, silver will rally fast because positioning is already very short. Also keep an eye on COMEX silver inventories — they've been drawing down, which is usually bullish. But for now, the trend is clearly against it. Luna: Speaking of things that draw down inventories, a quick note to our listeners — and this is totally unrelated but important to us. Lucas: Yeah, we don't run ads on this podcast, and we want to keep it that way. A couple of dollars a month from listeners who find these episodes useful genuinely makes a difference. Luna: If walking through the economy with us has made something click — maybe you finally understood the contango curve or the gold-silver ratio — buy me a coffee dot com slash fexingo is a simple way to chip in. No pressure, but every bit helps us stay independent. Lucas: It's literally what keeps the lights on. So thank you to anyone who does. Alright, back to silver — so where do we see the next floor? Luna: Some analysts are pointing to sixty-five dollars as a technical level. That's where silver bottomed in early 2024 before its big rally. Lucas: That's plausible. But if the macro keeps deteriorating, we could test sixty. Below that, the fifty-five to sixty range was a long-term support zone before the 2020 spike. The wildcard is what happens with the Iran situation — any escalation could spike gold and silver together as a safety play, at least temporarily. Luna: Right, the hundred-day mark of the Hormuz closure was just noted in the headlines. That conflict has been a slow-burn support for energy and gold, but it hasn't helped silver because it also disrupts trade routes and industrial supply chains. Lucas: Exactly. So silver is stuck between two forces: the safe-haven bid from geopolitics and the industrial drag from a slowing global economy. Right now the industrial drag is winning. But that could flip quickly if we get any positive catalyst on growth. Luna: Or if the Fed signals a pivot. Even a hint of rate cuts would weaken the dollar and boost all metals. Lucas: True. But given the sticky CPI data, a pivot before September seems unlikely. So for the next few months, I think silver continues to underperform gold. The ratio could move toward seventy before finding resistance. Luna: That would be a big move from here. But it's happened before — the ratio hit a hundred and twenty-five in 2020. Lucas: Right. And that was the ultimate buying opportunity. The trick is catching the turn. For now, I'd say silver is a 'wait and see' trade. Gold is the safer bet if you want precious metals exposure. Luna: And maybe check those industrial production numbers before jumping in. Lucas: Exactly. That's it for this episode of The Commodities Economy. We'll be back tomorrow with another angle on the shifting metals landscape.