Traditionally, silver has been regarded as a safe-haven asset, but in the last couple of years, it has carved out a new identity as an industrial metal. Beyond its traditional uses in the jewellery making and bullion trade, today this precious metal has become an important raw material used in manufacturing parts of renewable technologies, electric vehicles, semiconductors, and 5G communication systems.
This increased industrial use of silver has reshaped how investors perceive silver and silver-linked investment products such as silver ETFs and mutual funds. In this blog, we will explore how this industrial demand for silver can fuel demand for silver funds.
Silver’s expanding industrial role
Historically, silver prices were driven by investor sentiment and the global economic cycles. Nowadays, nearly 55% of silver demand comes from its industrial application, reflecting a structural shift in the factors driving its prices. The increase in silver demand is directly linked to global trends of renewable energy, electrification, and digitalisation.
- Solar energy: Each PV panel requires a small quantity of silver paste. Due to the government’s aggressive push to achieve 500 GW non-fossil capacity by 2030, this has multi-folded silver demand for use in PV panel production.
- Electric vehicles: Modern EVs use two to three times more silver than traditional combustion-engine vehicles, due to advanced circuitries and battery management systems.
- Electronics & AI infrastructure: Rapid growth in the number of data centres, 5G towers, and semiconductor fabrication units has further added to the increased industrial application of silver.
These new trends point towards strong, long-term industrial demand for silver, and because of the silver supply deficit from the last five years, thereby fueling silver funds’ returns in investors’ investment options.
Why Silver fund returns could strengthen
Unlike gold, which primarily relies on safe-haven demand, silver has the dual identity of precious metal and industrial commodity. This dual nature gives it exposure to both economic expansion and market uncertainty, the two forces that tend to move inversely, creating an exciting opportunity in silver fund investments. Silver funds are also attractive to investors because of:
- Diversification benefit: Silver’s price movements are not directly correlated with equities or gold, so they offer strategic allocation for portfolio diversification to investors.
- Inflation hedge: During high-inflation periods, silver often performs well as a safe haven asset, as during this time investors seek out assets that will preserve their purchasing power.
- Supply constraints: Despite strong demand, mine supply has failed to scale similarly due to limited new silver discoveries and strict environmental regulations on mining operations.
These dynamics have increased silver fund demand as silver funds stay resilient even amid global economic volatility. In other words, as industrial expansion continues, the industrial demand for silver could support a steady uptrend in silver investment products.
Investment in Silver
In today’s digital era, investors no longer need to buy physical silver to participate in this trend. They can access various asset classes, which enable investment in silver conveniently, like silver mutual funds, silver ETFs, or silver-backed instruments.
These funds allow the retail investor to invest in silver metal without worrying about physical silver storage, purity, or liquidity issues. For investors who have equity or debt instruments as their core portfolio holdings, adding a silver fund can provide diversification to their portfolio, along with the potential to capitalise on upside in commodities.
Before making investment decisions, investors can compare various silver funds with the help of a mutual fund screener on the basis of their past performance, expense ratio, and tracking efficiency, etc.
The bottom line
Silver is no longer just poor man’s gold; it is the metal of the industrial economy. Its manufacturing demand in the electrical, clean energy, and semiconductor components is likely to redefine the long-term structural demand for silver. Silver funds present exciting opportunities for investors to participate in this industrial revolution and gain exposure beyond conventional equity and bond markets.
