2020 will remain in history as the year that the coronavirus pandemic changed the way societies function. For investors, it is the year when gold reached a new all-time high above the $2,000 level.
Gold traders have long hoped that the yellow metal will, eventually, rise. As a hedge against inflation, subdued inflation in the United States was a reason for a lower gold price. However now that the Fed signals extreme easing conditions, inflation expectations built up, and gold acted as it was supposed to.
Gold is not the only alternative investment available to investors. Silver is another precious metal that rose even more in 2020, and still is far away from all-time highs.
Silver Market Insights to Consider
Viewed as the “poor man’s gold”, silver was always the second choice or option when considering an alternative investment to protect the portfolio from inflation. 2020 so far proved to be a spectacular year for silver investors – the price of silver rose from $11 during the March 2020 to almost $30.
Like any commodity, the price of silver depends on the supply and demand balance. Above-ground silver and underground silver are closely considered when interpreting the price of silver. The spectacular rise in the price of silver this year has nothing to do with production levels or with changes in supply and demand. Instead, demand from the investment community rose dramatically.
Demand for silver increased starting with 2019. Just like gold, which broke higher in the summer of 2019, silver saw an improved sentiment from institutional investors. However, the price of silver did not follow the breakout higher seen in gold in 2019. Instead, it did recover the lost ground this year.
The growing demand for safe-haven assets made silver and other alternative investments attractive. Institutional investors like endowments further diversified their portfolio with the aim of preserving capital.
The alternative investments world is a fascinating one because the primary reason why anyone would invest in gold or silver or lumber is to obtain diversification benefits and protection against inflation. That means that no performance at all or even negative performance is accepted as long as the portfolio remains protected.
However, when an investment delivers 200% returns in less than a quarter, it makes one wonder where is the inflation everyone fears off? Because inflation is nowhere to be seen, the rise in silver and gold prices means that inflation expectations are on the rise – and that is enough to create strong demand from the investment community.