Silver breaking out above Rs 1 lakh is an opportunity for investors. Here’s why

Gold has reached an all-time high, with its futures crossing the ₹89,000 level intraday on MCX. Following gold, a significant upmove has also been witnessed in silver’s price, with futures trading above ₹1,00,000. I discussed the strong upside potential for silver at the beginning of March, and since then, the price of future contracts has risen by 6.6%.

As mentioned in the previous article, one of the major data points supporting silver’s upside potential is the Silver-to-Gold ratio. Excluding the COVID-period decline, the current ratio of 1.09% is near a 30-year low. Gold, which has moved up phenomenally, has also paved the way for silver to gain momentum, as it closely follows in the precious metals category.

ETMarkets.com

Now there is yet another reason to focus on silver… It has formed a new all-time high and even crossed the psychological mark of Rs 1 Lakh. On analysing historical returns of silver after it crosses the previous high, we find that average forward returns are positive across different periods, with 12-month forward returns providing the highest average return and strike rate. The returns are tabulated below:

Note: Once an entry has already been taken, any new entry occurring during the 3-month, 6-month, or 12-month period is ignored until its completion. The MCX Ahmedabad market's Session II closing spot prices of Silver are considered for the calculation.

As per the above-mentioned calculations, investing in silver when it breaks its previous high yields average returns of 5.20% over a 3-month investment horizon. There were 8 positive instances out of 13, resulting in a strike rate of 61.54%.

Similarly, over a 6-month period, the average return is 15.11% with a strike rate of 62.50% (5/8), and over a 12-month period, the average return is 28.74% with a strike rate of 83.33% (5/6).

Comparing the returns across the three investment horizons, a longer investment period appears to be a better alternative. Based on annualized average returns, gains over a 6-month period (30.22%) are almost one and half times those of a 3-month period (20.79%), while the strike rate remains at a similar level of 61%–62%. However, when extending the investment period from 6 months to 12 months, the annualized average return (28.74%) remains slightly lower, but the strike rate improves significantly by over 20 percentage points. That said, the number of instances decreases as the investment horizon increases.

Continuing the above study for actual investment, recently an entry signal was generated for a 3-month holding period on March 17. Now let’s wait and see how silver performs going forward. I would like to reiterate some of the key factors I mentioned in my previous articles that are driving silver prices.

Silver is extensively used in electronics, solar panels, and electric vehicles (EVs). Additionally, the rapid adoption of 5G technology and the expansion of semiconductor production have further fueled silver consumption. On the supply side, constraints persist, as silver mining output has not kept pace with rising demand. The following data from the World Silver Survey 2024 highlights the increasing silver shortage in the global market in recent years:

ETMarkets.com

Silver has already achieved a breakout, making it a key focus in the market. The uptrend is likely to continue, as silver still has room to rise compared to gold’s current levels. Allocating a portion of your portfolio to Silver could be a wise strategy to capitalize on potential upward momentum, demand-supply dynamics, and investor preference for safe-haven assets, besides getting a cushion during uncertain times and an inflation hedge.

Silver is likely to shine in your portfolio—but with a word of caution: it is more volatile than gold.