Why is Copper Outshining Silver Year-to-Date

12/9/2021

Natural Resources

0 min read



	Image Credit: TORLEY (Flickr)

Will Copper Keep Motoring and Will Silver Lose its Tarnish in 2022?

Silver and copper seem to have been swimming in different economies this year. Silver is on track to decrease by its largest percentage since 2014, while copper is experiencing a third straight year of gains. What are the driving factors for the two different paths? Can copper continue its march higher? What would cause a reversal in silver’s dip?

Background

A big upward spike in silver during the last days of January 2021 seemed to be part of a r/wallstreetbets user effort to short squeeze equities that had short positions growing- in this case, silver ETFs and mining companies. It was a short-lived spike but managed to temporarily push the price of silver to an eight-year high. Since then, silver futures have been trading sideways to downward. Currently, the metal is down 17% on the year. The white metal has both industrial uses and is used as a store of value, this makes it popular during periods of inflation. It’s also the second most popular metal for jewelry.

The ten-year chart below visually demonstrates how silver and copper loosely have tracked each other’s direction. Copper began its ascent halfway through last year, and the direction has only recently paused to consolidate. Silver began consolidating about the same time copper turned upward.

Historically it can be said that when copper outperforms silver, expectations for global economic growth are high and inflation expectations are low. Both global growth and current expectations for inflation are now growing.

Copper

Copper demand benefits from construction, electronics, and energy generation and storage. One key theme that has grown during 2021 is the redesigning and rebuilding of the world’s energy infrastructure. Copper is one of the key elements required to deliver change to this infrastructure. The U.S., China, and the rest of the industrialized world have become very economically active following the slowdown from the pandemic. All are now committing huge sums on infrastructure projects that will require the highly conductive, low corrosive metal. The Made in China 2025 and China Standards 2035 initiatives include spending US$1.4 trillion on copper-heavy infrastructure programs. This would include 5G networks, industrial internet, inter-city transportation and rail, ultra-high-voltage power transmission and EV charging stations.

SIlver

Silver also has its place in the global energy infrastructure buildout. Although it is considered a precious metal and is popular for jewelry, the scarce metal is seeing increased industrial use including, solar panels, cell phones, thermal electrical connections, to name a few. Medically, Its non-toxic, antimicrobial properties make it a top choice in medicine and other products where being sanitary is imperative.

The pandemic did little for the silver jewelry market; however, the post-pandemic, where more will be treating themselves, dressing up, and being seen, could spark demand for jewelry. The infrastructure buildout continued growth to all things electronic and move to EVs will not impact silver demand as much as it does the more abundant copper but could still cause a meaningful demand increase. At the present cost of over $22 an ounce, most silver miners and junior miners benefit from continuing and expanding operations, even if the price remains stagnant. An increase in output to meet any increase in demand could be positive for these stocks.

Take-Away

The massive changes in infrastructure and expected post-pandemic consumer behavior has caused copper and silver prices to be less closely correlated. While copper has gotten most of the attention, silver may begin to benefit as well. While mining stocks tend to trend with the minerals they mine, an increase in demand without an increase in price can produce more output and higher revenue. Research on both copper and silver stocks can be found here. Analysis of individual mining companies can be reviewed by following this link and then clicking “metals and mining.”

Paul Hoffman

Managing Editor, Channelchek

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