Silver Performance During Recessions

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During economic uncertainty, investors often flock to precious metals. These assets tend to hold their value when others fall and can help guard against inflation. Unlike paper currencies, they offer tangible worth that can’t be eroded by government policies. Among them, silver stands out thanks to its dual nature. It functions as an industrial metal essential in electronics, solar panels, and medical applications while serving as an investment asset. This article analyzes silver’s historical performance during major downturns, examining silver price during recession periods compared to other investments and whether it deserves consideration as a portfolio stabilizer during turbulent economic times.

Looking for more insights on how silver behaves during economic downturns? This informative analysis breaks down silver’s historical performance during various recession periods: https://www.youtube.com/watch?v=z5wDHuSgooU

Silver’s Historical Performance During Major Recessions

Over the past 50 years, silver’s performance during recessions has followed clear patterns. Although each downturn is different, silver has shown both weakness and resilience depending on the nature of the recession, monetary policy responses, and overall market sentiment. This section looks at four major recessions to shed light on the question “How does silver perform in a recession?”.

The 1970s Recession and Silver’s Price Movement

The stagflation of the 1970s, characterized by high inflation and stagnant economic growth, created ideal conditions for the silver market recession response.  Silver prices surged from under $2 per ounce in early 1970 to nearly $50 by January 1980, delivering one of the most dramatic bull runs in its history. During this decade, silver vastly outperformed traditional assets. While the S&P 500 struggled with inflation-adjusted losses and bond yields were eroded by rising prices, silver delivered exponential gains. Though gold drew more headlines, silver outpaced it in percentage terms, highlighting its role as a high-performing inflation hedge.

Chart: S&P500 vs. Dow Jones vs. Gold vs. Silver (1973-1975). Source: Data from LongTermTrends.net.

Silver During the 1981 Recession

The 1981-1982 recession tells a different story for silver markets. According to data from Visual Capitalist, silver underperformed compared to both gold and equities during this contraction. Silver prices fell from approximately $16 to $8 per ounce through this period. This was influenced by two key factors. Firstly, the Federal Reserve’s aggressive interest rate hikes to combat inflation played a significant role, driving up the value of the U.S. dollar and making precious metals less attractive. Secondly, silver faced pressure from weak industrial demand as economic activity slowed, alongside reduced investor interest in commodities.

 

Chart: S&P500 vs. Dow Jones vs. Gold vs. Silver (1981-1982). Source: Data from LongTermTrends.net.

COVID-19 Economic Contraction and Silver Prices

The COVID-19 pandemic created extreme volatility in silver markets. This recent case study illustrates what happens to silver prices during a recession characterized by global pandemic conditions and unprecedented monetary intervention. Initially, silver plummeted alongside equities, falling nearly 40% in March 2020 to below $12 per ounce as market liquidity evaporated. This initial reaction highlighted how silver can sometimes behave like risk assets during panic phases. However, silver’s recovery was remarkable, more than doubling from its lows within five months to over $28 per ounce by August 2020. This performance was driven by a combination of monetary stimulus, supply disruptions from mine closures, industrial demand recovery, and investor interest in hard assets. The COVID recession reinforced the pattern that while silver may not provide immediate recession protection, it often delivers strong performance during the recovery phase.

Chart: S&P500 vs. Dow Jones vs. Gold vs. Silver (Feb-Apr 2020). Source: Data from LongTermTrends.net.

Comparing Silver vs. Stocks During Recessions

Understanding how silver performs relative to equities during economic downturns can help investors optimize their portfolio allocations when recession signals appear. Blanchard’s Silver vs. Stocks: Comparing Performance During Recessions provides further valuable insights into this relationship through historical analysis.

Statistical Analysis: Silver vs. S&P 500

According to data highlighted by Visual Capitalist, silver vs stocks during recession analysis shows silver outperformed the S&P 500 in three of the last eight U.S. recessions. These periods were marked by economic instability, inflationary pressure, or financial crises, which tend to favor hard assets over equities. During the 1973-75 recession, silver surged due to inflation and geopolitical tensions, while the stock market experienced significant declines. Similarly, in the 1981 recession and the 2007-09 financial crisis, silver preserved or gained value as equities struggled. This pattern suggests that silver tends to excel in downturns driven by inflation, policy shifts, or market uncertainty.

Chart: How Silver Performs During Recessions by Elements, Visual Capitalist (2022). Data sourced from Macrotrends and MarketsWiki.

When Silver Outperforms Equities

Silver typically outperforms stocks under three conditions: during high inflation and currency devaluation, during financial system stress, and following aggressive monetary stimulus. In 1973-75, silver rose sharply as inflation surged and confidence in traditional markets weakened. In 1981, although the Fed’s rate hikes later suppressed silver, it initially held strong due to inflation fears. During the 2007-09 crisis, silver acted as a safe-haven asset amid collapsing financial institutions and aggressive monetary stimulus. These case studies show that silver thrives when fiat currency value is in question or when investors seek a hedge against systemic risk – conditions under which equities typically underperform.

Chart: Silver vs. S&P 500

When Stocks Outperform Silver

Stocks tend to outperform silver during recession recovery phases marked by economic stabilization, rising consumer confidence, and strong corporate earnings. In such periods, investors shift from safe-haven assets like silver to risk assets like equities, anticipating growth and profitability. Silver underperforms when inflation is low or falling, interest rates are stable or rising, and industrial demand is weak. For example, during the mid-1990s recovery and the post-2001 recession period, silver lagged behind the S&P 500 as tech and financial sectors led the market rebound. These environments favor equity gains over precious metals, which lose appeal as fear and uncertainty fade.

What Happens to Silver Prices During a Recession? 

While no two recessions impact silver identically, its prices follow distinctive patterns during economic downturns that reflect competing forces of supply, demand, and investor sentiment.

Initial Market Reaction and Price Volatility

In the early stages of a recession, silver prices often experience heightened volatility due to shifting investor sentiment and liquidity pressures. Initially, silver may drop as investors sell off assets to raise cash and cover losses elsewhere. This pattern was evident in 2008 when silver dropped from $21 to $16 per ounce and in March 2020 when prices plummeted nearly 40%. This liquidity-driven dip is common during sudden market stress, creating short-term pressure regardless of fundamental outlook.

Industrial Demand Impact

Silver is a key industrial material, with over 50% of its demand tied to manufacturing sectors such as electronics, solar energy, and medical devices. During recessions, when industrial production slows, this demand often contracts, putting downward pressure on silver prices. The electronics sector, which accounts for nearly 25% of industrial silver usage, often sees reduced output during recessions. Similarly, automotive industry slowdowns affect silver demand for electrical components.

Investment Demand as Safe-Haven Asset

Counterbalancing industrial weakness, investment demand for silver often increases during prolonged periods of market stress and economic uncertainty, influencing silver vs stocks during recession performance patterns. Investors typically turn to physical silver as a store of value, especially when inflation rises or confidence in financial markets declines. This is reflected in increased purchases from both retail and institutional buyers. Additionally, silver-backed ETFs often experience notable inflows during recessions, signaling heightened investor interest. For example, during the 2008 financial crisis and the COVID-19 recession, silver ETFs saw significant growth, with the iShares Silver Trust seeing inflows of over $500 million in April 2020 alone.

Is Silver Just as Good as Gold in a Recession? 

While both metals serve as portfolio hedges during economic uncertainty, silver and gold behave quite differently in recessions, each offering distinct advantages and drawbacks for investors seeking protection.

Comparing Silver and Gold Performance

Historical data shows gold typically outperforms silver during recession initial phases. In the 2008 crisis, gold declined just 12% from peak to trough, while silver plummeted over 50%, making gold options like Blanchard Gold Products particularly attractive during early recession phases. However, silver often delivers stronger returns during recovery phases. After 2008, silver surged 400% from its lows versus gold’s 170%. The gold-to-silver ratio typically spikes during recessions, reaching 114:1 in March 2020 compared to its historical average of 60:1, often contracting during recoveries and creating potential opportunities. Blanchard’s Measuring the Impact of Silver versus Gold in Your Portfolio explores how these dynamics can influence optimal allocation between both metals.

Chart: Historical Gold and Silver Prices (1992-2020). Data from London Bullion Market Association (LBMA).

Silver’s Higher Volatility

Silver consistently demonstrates greater volatility than gold, with sharper price swings during both downturns and recoveries. During the 2020 COVID-19 disruption, silver dropped 40% compared to gold’s 15% decline but subsequently gained 140% versus gold’s 40% rise. This volatility stems from silver’s smaller market size (roughly one-tenth of gold’s), making it more susceptible to liquidity pressures. While gold typically offers a steadier, lower-risk profile, silver presents a higher risk-reward proposition. As such, silver tends to be more appealing to investors who can withstand short-term turbulence in pursuit of long-term upside.

Industrial vs. Monetary Demand

A key distinction between silver and gold lies in their demand sources. Silver derives a significant portion of its value from industrial use, making it more sensitive to economic slowdowns. In contrast, gold’s primary role as a monetary asset creates more consistent recession demand, with approximately 85% of annual demand from investment and central banks. Gold responds more directly to interest rates and currency concerns, while silver adds exposure to industrial recovery. This makes silver less reliable during recession depths but potentially more rewarding during recovery transitions.

Is Silver a Good Investment During a Recession? 

While not a perfect safe haven, silver offers unique characteristics that may benefit portfolios positioned for both protection and recovery potential. This section examines the key considerations that can help investors decide if silver belongs in their recession strategy.

Silver’s Pros During Economic Downturns

When considering silver’s advantages during economic contractions, several factors stand out. First, silver provides effective inflation protection when central banks implement stimulus measures. Since silver cannot be created through monetary policy like currencies, it often preserves purchasing power when money supply expands. Second, silver serves as a portfolio diversifier, typically showing low correlation with traditional assets during market stress periods. Third, silver offers exceptional recovery potential. Following the 2008 crisis, prices rose over 400% from their lows as economic conditions improved while stimulus remained in place.

Potential Drawbacks to Consider

Despite its benefits, silver comes with some limitations during recessions, too. First, silver’s industrial demand component creates vulnerability when manufacturing activity declines, as roughly half of silver consumption comes from industrial applications. Second, silver exhibits substantially higher volatility than gold, with price swings often 2-3 times more severe in both directions, requiring greater investor conviction. Third, practical challenges exist. Physical silver requires considerable storage space due to its lower value density compared to gold.

How to Invest in Silver for Recession Protection 

There are several ways for investors to access silver’s recession protection, each suited to different investment strategies and risk preferences.

Physical Silver Options

Investors looking for direct exposure to silver during a recession often turn to physical silver, such as coins and bars from reputable dealers like Blanchard Silver Products. These tangible assets offer a secure store of value, high liquidity, and recognition. However, premiums on physical silver can increase during market stress due to higher demand and supply chain disruptions. The cost of acquiring silver in its physical form during a recession period often exceeds the spot price, with premiums varying based on the type of silver, mint, and market conditions. Notably, during the March 2020 silver market recession, Silver Eagle premiums temporarily exceeded 100% over spot prices as retail demand surged while supply chains faced disruption.

Paper Silver Investments

Paper silver investments, such as silver-backed ETFs and mining stocks, offer a more liquid and accessible way to gain exposure to silver. ETFs track silver’s price without requiring physical storage, making them a convenient option. Mining stocks provide indirect exposure, benefiting from rising silver prices while offering additional growth potential through company performance. However, paper silver does not provide direct metal ownership and comes with its own set of risks, including tracking errors in ETFs and the volatility of mining stocks. Unlike physical silver, paper investments are subject to market fluctuations and can be impacted by factors beyond the price of silver itself, such as company management and geopolitical risks.

Timing and Allocation Strategies

When investing in silver, it’s important to carefully consider the appropriate portfolio allocation, particularly during periods of economic uncertainty. Typically, financial advisors suggest allocating 5-10% of a diversified portfolio to precious metals like silver, though this can vary depending on an investor’s risk tolerance and market outlook. Some investors also consider numismatic options, as outlined in the Blanchard Rare Coins Guide, for additional portfolio diversification. For timing, a dollar-cost averaging (DCA) approach is often recommended. This strategy involves spreading purchases over time to reduce the impact of short-term price fluctuations, allowing investors to avoid making large commitments during market peaks.

Conclusion

Silver offers investors a compelling option during economic downturns, with historical performance showing a distinctive pattern across multiple recessions. When analyzing the question “How does silver perform in a recession?”, we see that while it typically faces initial pressure, it often delivers substantial returns during recovery phases. This behavior stems from silver’s unique dual role in the global economy, functioning simultaneously as an industrial commodity and a precious metal investment.

As a portfolio component during uncertain times, silver provides diversification benefits that differ from both traditional assets and gold. Its ability to hedge against inflation while maintaining low correlation to equities creates defensive characteristics, while its essential role in manufacturing and technology gives investors exposure to eventual economic recovery that purely monetary metals cannot offer. However, investors should approach silver with appropriate allocation strategies. Its higher volatility requires greater conviction than gold, and its industrial demand component creates some vulnerability during manufacturing slowdowns.

For those with suitable risk tolerance, silver represents not just a recession hedge but a potentially high-performing asset that can fulfill both protective and growth-oriented roles when strategically positioned within a diversified portfolio.

FAQ Section 

1.   How does silver perform in a recession?

Silver typically follows a distinct pattern during recessions: initial decline during market panic, followed by strong recovery when stimulus measures are implemented. It has outperformed the S&P 500 in three major recessions (1973, 1981, 2007), with performance driven by inflation rates, monetary policy responses, industrial demand fluctuations, and investor sentiment toward safe-haven assets during financial uncertainty.

2.   Is silver just as good as gold in a recession?

Silver offers different recession benefits than gold, not necessarily better or worse. While gold typically provides more stability during market turmoil (falling less during the 2008 crisis), silver tends to deliver stronger recovery performance (surging 400% after 2008 versus gold’s 170%). Silver’s higher volatility stems from its smaller market size and dual industrial-investment nature, creating greater downside risk during recession onset but potentially larger upside during economic recoveries when industrial demand returns.

3.   What happens to silver prices during a recession?

During a recession, silver prices typically follow a two-phase pattern. In the initial recession stage, silver often experiences significant selling pressure as investors liquidate positions to raise cash, causing prices to decline alongside risk assets. As the recession progresses and central banks implement accommodative monetary policies, silver prices tend to recover and potentially appreciate substantially, particularly when inflation concerns emerge or industrial demand begins to rebound while stimulus measures remain in place.

4.   Is silver a good investment during a recession?

Silver offers both advantages and risks during recessions. On the positive side, it acts as a hedge against inflation and currency devaluation that often follow stimulus measures while providing portfolio diversification with recovery potential (rising over 400% after the 2008 crisis). However, silver also faces challenges during economic contractions since roughly half its demand comes from industrial applications, making it vulnerable to manufacturing slowdowns.

5.   How does silver compare to stocks during recessions?

Silver has outperformed the S&P 500 in three of the last eight recessions since the 1970s. Silver tends to excel over stocks when specific economic conditions emerge: high or rising inflation that erodes equity valuations, significant currency devaluation concerns following aggressive monetary stimulus, and periods of financial system stress where confidence in traditional markets falters. However, stocks typically outperform silver during disinflationary recessions and in recovery phases characterized by strong growth without significant inflation pressures.

Photos:

Image: Solar panel array.

Image credit: The Silver Institute

Silver Britannia coin. Photo: Osama Madlom/Unsplash

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