Research Institute at DAISHIN SECURITIES, Park Hyun-jung, noted on the 20th that while silver prices are rising in tandem with gold prices, they are still undervalued. She predicted that silver supply could also tighten significantly in the future. Park recommended using U.S.-listed physical exchange-traded funds (ETFs) when investing in silver.
According to Park, unlike gold, silver has yet to exceed its historical peak. The gold/silver ratio, which indicates how undervalued silver is compared to gold, currently stands at 90.7. This means that 90.7 ounces of silver are needed to purchase one ounce of gold. The average gold/silver ratio over the past decade has been 80.1.
Park stated, "As of 2022, global silver reserves are estimated at 550,000 tons, while gold reserves are about 52,000 tons," adding, "The difference in reserves is about 10 times, but the price difference is nearly 90 times." She continued, "If one expects the gold/silver ratio to revert to its long-term average from a medium to long-term perspective, it may be a worthwhile period to consider investing in silver."
The supply of silver is projected to diminish. Only 28.3% of silver production is mined from silver mines, with the remainder obtained as byproducts from the mining of other metals. Park explained that this supply shortage could continue for over a decade, as major mining companies have steadily reduced investment in copper and zinc mining.
Demand remains steady. Unlike gold, more than half (54.8%) of silver is used for industrial purposes. In contrast, 48.7% of gold demand is for jewelry, with only 6.7% for industrial use. This is due to silver's higher electrical and thermal conductivity compared to copper. It is used in solar panels, electric vehicle battery joints, and electric vehicle charging station cables.
Park advised checking interest rates and the value of the dollar when investing in silver. Silver prices move inversely to real interest rates. Typically, when the benchmark interest rate is lowered, real interest rates also decrease, which can lead to a strengthening of silver prices. Silver prices also have a negative correlation with the dollar, so when the dollar is weak, silver prices tend to be strong.
Park anticipates favorable conditions for silver prices. He noted, "Although the U.S. benchmark interest rate cut has momentarily stalled, the possibility of further rate hikes is small for now," adding, "If the European manufacturing economy rebounds, the growth rate gap between the U.S. and Europe may narrow, potentially leading to a weakening of the dollar."
Park also stated, "As silver's importance in industries increases, it is a natural trend for each country to consider holding silver as a core asset," suggesting that "Russia's movement to include silver as a reserve asset could influence central banks in countries like China, which aim to reduce reliance on the dollar." He added, "If demand from central banks for silver materializes, it could create a favorable environment for silver prices to form an upward trend in the long term."
Investing in silver can be done through ETFs, which are mainly divided into physical and futures ETFs. Physical ETFs operate by actually holding physical silver, while futures ETFs operate by purchasing futures contracts with silver as the underlying asset.
There are no physical silver ETFs available domestically, so investments must be made in markets like the U.S. stock market. This implies exposure to exchange rate fluctuations. Since actual silver is stored, storage expenses are reflected in the net asset value (NAV).
This is why it is important to carefully evaluate the total fees associated with each silver physical ETF. The SIVR ETF had a 10-year difference of 1.4 percentage points compared to silver's physical price, while the PSLV reached 27.7 percentage points.
Only silver futures ETFs are available domestically, such as KODEX Silver Futures (H). Silver futures ETFs replace expiring futures with spot contracts as the contracts approach expiration, which can incur rollover expenses. Additionally, expenses related to hedging are reflected in ETF performance.
Park stated, "Despite silver's physical price rising an average of 7.1% over the past decade, the annual average return of KODEX Silver Futures (H) was only 3.7%." He noted that "the cumulative return difference between silver and KODEX Silver Futures (H) has widened to 59.9 percentage points," adding, "For investors planning a long-term investment in silver, it would be beneficial to invest in silver-related ETFs listed on the U.S. stock market rather than the domestically listed silver futures ETFs."