Silver has outperformed the S&P 500 in three of the last eight recessions and often sees price growth in times of economic hardship and uncertainty. The performance of silver during a recession is dependent on several key factors. Among those factors, investor behavior and demand dynamics have a large impact.
From its industrial to medical applications, household and investment uses, the cool gleam of silver illuminates many lives directly and indirectly, and its uses are myriad. Silver demand is poised to grow through greater adoption of green initiatives and more widespread electric vehicle production, which may enhance its role as a safe-haven asset.
Safe Haven Demand
Investors repeatedly turn to safe-haven assets to preserve and protect wealth during times of inflation and economic uncertainty.
Gold has historically been seen as the primary safe haven asset for investors to consider during recessions, but silver has also played a pivotal role during times of market volatility.
Industrial Demand
The industrial use of silver has expanded over time with its growing number of applications. The increasing adoption of electric vehicles, solar panels, and other emerging green technologies is projected to persist over time.
Historic Performance
We will compare the spot price of silver’s performance through these historic recessions to the performance of the S&P 500.
The S&P 500 is widely regarded as a gauge for benchmarking economic performance as it represents 500 leading publicly traded companies representing numerous sectors. Its performance serves as a reference point for evaluating multiple facets of the United States economy.
Silver has effectively outperformed the S&P 500 in three of the last eight recessions.
The Performance of Silver in Recessions
1973 Recession
The 1973 recession was impacted by the Organization of the Petroleum Exporting Countries (OPEC) raising oil prices and embargoed oil exports to the U.S. Deficits from the Vietnam War and increased saturation in the international steel market contributed to this 16-month recession.
Abandoning the Bretton Woods system, which tied many western currencies to the U.S. dollar, and a stock market crash destabilized numerous international currencies in this recession.
Silver prices rose by more than 40%, while the S&P 500 lost about 13% of its value in this time.
1981 Recession
The 1981-1982 recession was primarily driven by monetary policies aimed at reducing inflation. The Phillips Curve was an economic concept that described an inverse relationship between unemployment and wages and, therefore, inflation. It had been utilized in what was known as the Phillips Curve tradeoff since the 1960s.
The belief was that unemployment could be reduced through higher inflation and vice versa, but this approach eventually led to an 11% unemployment rate, the highest since World War II.
Oddly, the 1980 recession saw silver take a 55% price dive against the S&P’s moderate 6.6% growth but during the 1981 inflation, silver prices rose by 17.5%, while the S&P 500 grew by just over 5%.
The Great Recession
Numerous factors contributed to the Great Recession.
Optimism from the Great Moderation led to immoderate spending amid deregulation that allowed excessive risk on behalf of financial institutions.
Low interest rates and easy credit resulted in a housing bubble, which was exacerbated by high-risk loans like subprime mortgages. When the bubble began to burst, housing became a toxic asset, causing widespread financial panic. The crisis spread beyond housing and engulfed banking and stocks, leading to the 2008 stock market crash.
During the Great Recession, the value of silver dipped by 8% as the S&P 500 lost over 37% of its value.
