Silver sets new record; should advisors add to client portfolios?

The “Hunt” is over for a new record high in silver. And advisors are considering what to do next with the increasingly precious metal.

Silver prices rose almost 7% a troy ounce to settle at $50.13 Monday, eclipsing the record close of $48.70 set in January 1980 in the wake of an attempt by the Hunt Brothers to corner the market. Of course, adjusted for inflation, silver would need to rise above $200 to truly equal the highwater mark set over 45 years ago.

Nevertheless, the nominal rise in silver, up almost 75% year-to-date compared to a 54% surge in gold, has advisors shining a light on the future of the metal.  

Kevin Thompson, founder and CEO of 9i Capital Group, says the rise in silver has been caused by two main forces: the inflationary hedge of a finite asset that has a use case for global inputs, and a massive short-covering rally.  As a result, Thompson is telling clients not to chase silver at these levels, “as many short covering rallies are met with downward price action following parabolic moves higher.”

That said, Thompson sees less risk in silver than other commodities due to the fact that it is a widely-used industrial metal in addition to an inflation hedge and store of value.

“I have always felt silver was a much more useful global asset as you can see it inside of many manufacturing inputs such as cars, homes, and machinery,” Thompson said.

James Cordier, CEO of Alternative Options, is more bullish on silver,  seeing it as a long-term hold as more and more investors choose alternative assets for their overall portfolios.

“Silver uniquely combines industrial demand which will include the AI build-out, along with its history as a hedge against inflation and economic uncertainty.  Rarely can an asset class perform extremely well during good times or bad, but Silver has demonstrated the ability to do just that,” Cordier said.

He adds, any time precious metal prices reach record highs, they are often accompanied by volatility. This time is no different. 

“There are several option structures which can provide much of the upside potential many commodities possess that also allow you to hedge your risk,” Cordier said.

Platinum or palladium, perhaps?

Now that silver has achieved new highs, advisors are being asked by clients whether they should branch out further afield into other precious metals like platinum and palladium, up 75% and 61% YTD, respectively.

Thompson, for one, believes gold is more than good enough for investors as an inflation hedge.

“I like to keep it simple and hedge inflation risk with equities and small allocations to gold at this time. Maintain the current strategy because it has worked and should continue to work, especially as the USD continues to lose value,” Thompson said.

Meanwhile, Cordier believes investors currently in the gold market are likely sitting with very large gains and may feel the “FOMO” on silver and other metals as well.

“There certainly is a strong possibility that precious metals continue their climb, thus silver and other metals could be very worthwhile additions to a gold allocation,” Cordier said.