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The Mutual Fund Show: Should Your Portfolio Change With Rising Rates?

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Nisreen Mamaji: Silver’s fortune is more linked to the economic cycle, because of higher industrial use.

If you look at where silver is used, the allocation towards industry is nearly 50.7%, and towards jewellery it is only 17.8%; silverware is only 4.2%. Basically, the bulk comes from the industrial use.

Electric vehicles and the automation industries are poised to move with nearly 22% CAGR over the span of 2021 to 2025. So, there is a use for silver. For solar energy, there is use for silver, for 5G rollout as well as for semiconductors, cables, chips, and fuses. Photography has about 2.8%. So, if you consider the bulk of silver use, it is towards industrial, while 80% of gold is only towards jewellery. The industrial demand will pick up and therefore, of course, there is a role for the silver and silver ETFs.

Secondly, when the economy takes off, silver will rise higher than gold. So, when inflation is on the rise, silver will go higher than gold because silver is considered to be a slightly better inflation-hedge compared to gold.

On the demand-supply side, silver prices are more responsive than gold. Most of the central governments, pension funds and large institutional investors will hold large reserves of gold. Therefore, that lends stability for gold prices, but it is not affected by the economic decisions.

Silver also has a very weak positive correlation to stocks, bonds, commodities, and therefore, as a diversifier, gold would be a good instrument to keep.

Keeping both these views in mind, in the longer term, If industrial use is going to pick up for silver, then definitely we should keep an open mind and introduce some amount of silver, either in a multi asset form, or ETF form, vis-a-vis gold, which has been our traditional instrument for hedging.

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