Silver Is a Strategic Asset for Diversification and Hedging Risk

By Mike Maharrey 

“Silver is a reliable hedge against inflation, currency devaluation, and systemic financial instability.”

This is the conclusion of a new report by Toronto-based Capitalight Research Inc. commissioned by the Silver Institute.

“Institutional investors seeking to strengthen their portfolios through diversification should consider the compelling benefits of investing in silver.”

According to the report, silver “offers a unique blend of stability and growth potential as a tangible asset with significant safe-haven appeal and growing use in industrial applications.“

Silver has a low correlation with equities and bonds, making it an excellent portfolio diversifier. 

The report focuses on increased fragility in the geopolitical environment and deteriorating government fiscal positions. 

For instance, the United States ran the third-largest budget deficit in history in fiscal 2024, and there is no sign that the borrowing and spending are going to slow down. And the U.S. isn’t alone. The world is buried in government debt. According to the report, this enhances silver’s allure “as an investment to hedge against inflation and currency devaluation.”

The report also delves into the bullish supply and demand dynamics for silver, noting its “critical role in advancing green technologies such as solar energy, electric vehicles, and electronics.”

Industrial demand for silver is on track for a new record high in 2024, and the silver market is on pace for its fourth consecutive annual supply deficit. 

Industrial demand is expected to rise by 7 percent this year and surpass 700 million ounces for the first time. Industrial demand for silver set a record of 654.4 million ounces in 2023. As was the case last year, silver offtake for green energy applications is driving the increase in industrial demand.

The solar energy sector is using increasingly large amounts of silver. Silver is the best conductor of electricity of all metals at room temperature, making it a vital input in the production of solar panels. 

“The global transition toward renewable energy and electrification is driving a sustained increase in industrial consumption of silver. In contrast, supply constraints contribute to a persistent supply-demand imbalance (projected market deficit of 182 million ounces for 2024). This combination of rising demand and constrained supply could amplify price volatility and lead to significant upward pressure on silver prices.”

The report concludes that “silver stands out as a highly strategic asset for institutional investors due to its dual role as an industrial metal and safe haven asset during market instability.“

“Historically, silver has proven its value during economic and geopolitical crises, serving as a reliable hedge against inflation, currency devaluation, and systemic financial instability. Silver’s role has become even more pronounced in the modern global landscape and warrants a position in investment portfolios.”

You can download the complete report HERE.

Originally Published on Money Metals Exchange.