Investors are taking a shine to silver, as a soaring rally in gold puts the spotlight on the less expensive precious metal.
Silver for July delivery closed up 0.9% at $16.55 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices have risen 8.5% in July and are on track for their best monthly performance since December. They stand at their highest level in more than a year.
For silver bulls, the gains have been a long time coming. Investors have largely ignored the metal in 2019, even as expectations of a Federal Reserve interest-rate cut took gold to a six-year high.
There are several factors now fueling silver’s rally. Both gold and silver tend to become more attractive to investors when central-bank easing is on the horizon, as the metals struggle to compete with yield-bearing assets when rates rise.
Unlike gold, however, silver is used extensively in manufacturing, and its price has been depressed by fears of slowing global growth.
While those fears haven’t entirely dissipated, gold’s 11.3% year-to-date rise has sent some investors looking for cheaper alternatives, analysts said. Silver prices were still down for the year at the start of July, while gold prices had already notched a double-digit gain.
“There was a disconnect between gold and silver prices for a while,” said Edward Meir, a consultant at broker-dealer INTL FCStone. Lately, however, “there’s been a relative value rotation into silver.”
Prices of silver, which is a component of semiconductors, have also received a tailwind from signs of improving demand for the chips, Mr. Meir said. The metal is a component in semiconductor manufacturing.
Prices for silver—and other precious metals—have also enjoyed a boost from a recent spate of uneven global economic data that has bolstered the case for more central-bank easing.
On Tuesday, the International Monetary Fund said trade tensions are slowing the global economy more than earlier projections had anticipated. Real global economic growth will slow to 3.2% this year, 0.1 percentage point slower than forecast in April and down from 3.6% last year and 3.8% in 2017, the fund said in its flagship World Economic Outlook, released Tuesday.
The dollar will likely be an important factor in how far silver and gold can extend their rallies this year, as both metals are denominated in the U.S. currency and become more affordable to foreign investors when the dollar weakens.
A comparatively strong U.S. economy has kept the dollar steady against other currencies this year, despite expectations of Fed easing. That could change if the economy weakens in coming months, forcing the Fed to cut rates at a quicker pace than anticipated.
In energy markets, U.S. oil fell 1.6% to $55.88 a barrel after the U.S. Energy Information Administration reported that domestic crude-oil inventories fell by 10.8 million barrels, leaving commercial stockpiles at the lowest level in nearly four months.
Analysts said Hurricane Barry lowered production earlier this month, skewing the data.
Prices for Brent crude, the global benchmark, fell 1% to $63.18 a barrel.
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