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Silver has had a dazzling 2020, buoyed to multi-year highs by record amounts of cheap cash and a weak dollar. But as clouds gather on the economic horizon, investor passion for silver may be cooling and the price is now lurching towards its biggest monthly fall in nine years.
From August's giddy 7 1/2-year high at nearly $30 an ounce, silver has lost almost a quarter of its value so far in September, set for its biggest one-month drop since September 2011, when it fell by more than 27%.
Silver has profited from this year's rush into gold, which has touched record highs above $2,000 a ounce, as buyers sought alternatives to a weaker dollar, as well as protection against potential future shocks, whether those stem from Covid-19, geopolitics, or beyond.
But silver has a solid track record of delivering nasty shocks, particularly to the uninitiated, thanks in part to its dual personality as both a precious, and an industrial metal. It is inherently more volatile than gold and, whatever gold does, silver doubles down.
Gold's status as a safe-haven asset means it tends to gain when investors are feeling anxious about the stability of global financial markets. But that then places it in the line of fire if equities endure a vicious sell-off, as has been the case this month, as the S&P 500 has lost 8%, driven mainly by a decline in technology stocks, and gold has fallen below $1,900 an ounce to its lowest since July.
"If gold's on the back foot and the economic outlook is mournful (tick both) then silver remembers it's actually an industrial metal and goes into a tantrum," said Rhona O'Connell, head of market analysis, EMEA & Asia at StoneX.
She continued: "So the market's love affair was, as it should be, a serious flirtation that is now over and silver has fallen out of love with itself."
Economic data is showing that the recovery, both in the United States and elsewhere, is running out of steam and a second wave of Covid-19 infections is threatening to act as an even greater drag on growth, which has sent investors back into the arms of the US dollar.
Silver, like most dollar-denominated commodities, tends to trade inversely to the US currency, as weakness in the dollar makes it cheaper for overseas investors to buy those assets, while strength in the dollar has the opposite effect.
The price of silver, which is used in electronics, as well as jewelry, is still up 23% this year, making it 2020's top performing commodity, followed by gold, with a 20% gain.
However, it made most of that headway between March and early August. Silver has managed to log just two days in the black in September and has given up 40% of the gains made in that time.
"With losses since the start of the week amounting to just under 20%, silver almost finds itself in a bear market," Carsten Fritsch, a strategist at Commerzbank, said.
Retail and institutional investors alike appear to be giving silver the cold shoulder. Holdings of silver in exchange-traded funds have fallen by the biggest amount this month since December 2014, with an outflow of nearly 600 tonnes of metal, according to figures from Bloomberg.
Quite aside from silver's volatility, the fourth quarter can often serve as a moment of reckoning for any asset that has been out- or underperformed.
"Remember, we are entering the period where the commodity funds start looking at the new year rebalancing; best performers, top slice, worst performers, add weight. And silver's been a screamer this year," StoneX's O'Connell said.
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