This year, gold prices have shot to record highs not seen since September 2011. Silver prices have followed, up more than 30% year to date. How high will it go?

Technical traders believe that reaching US $26 this week will bring previous highs, including the all time high of US $49.50 into play. Since the US dollar is under a continuous devaluation campaign, there is no upper limit.

Looking at the perspective of downside potential versus a long-term upside target at the former all-time high of US $49.50/oz, buying silver in the high $20s still represents a favorable risk/reward opportunity. Today’s price is US $27.50.

But one thing that is guaranteed in the silver market is volatility. Riding out swings in silver prices is like saddling up on a wild, untamed horse. It will try to throw you off at every turn. What will win out ultimately is economic reality. The forces of supply and demand are much like the immutable laws of nature.

Some investors will benefit while others will get hurt from the price trends ahead.

If stagflation contributes to rising safe-haven demand for precious metals – which are currently facing supply challenges caused by COVID-related shutdowns of mines and refineries – then silver could prove to be an ideal portfolio diversifier.

We have already seen some of silver’s explosive price potential this year. Even bigger moves are likely still to come. Silver is set to outshine gold, even as prices of both precious metals soar during a faltering global economy and a weakening U.S. dollar.

Silver has a much higher industrial component to it and the global economy will recover at some point. The rebound in manufacturing activity will push silver prices higher compared to gold.

Here are the main differences between silver and gold:  

1.Industrial Use

About 12% of gold supply goes to industrial uses. But due to silver’s unique characteristics, 56% of its supply is used in industry. Silver has so many applications that you do not go one day without using a product that contains it. From electronics and medical applications, to batteries and solar panels, silver is everywhere, whether you see it or not.

2.Silver stockpiles are falling, Gold stockpiles are rising  

The primary reason governments don’t hold a lot of silver is because it’s no longer used in coinage. But silver is used in industry to a much greater degree now… so if future industrial needs rise, or the supply chain were interrupted, governments will be ill-equipped to support those needs. In contrast, central banks hold over 34,000 tonnes (1.09 billion ounces) of gold in official Reserves. And on a net basis, they continue buying every year. These ongoing purchases contribute to the overall demand for the metal. This source of demand isn’t present for silver. However, if the need for physical silver were to suddenly increase because of a monetary crisis, a shortage in industrial supply or a spike in investment demand, governments won’t be able to meet these needs with such tiny stockpiles. So, if governments started to buy silver, it would have a huge impact on the market, the demand would spike, and the price would skyrocket. This scenario may or may not play out, but it could.

3.Volatility

Silver will rise more in bull markets and fall more in bear markets than Gold. These swings can be substantial and make even the experienced investor nervous.

4.Storage

People thinking of holding physical silver need to consider that you can store roughly $170,000 of gold in a small safe deposit box, but that same space will only hold about $2,300 of silver.

Sounds like one of these ‘sure thing’ investment opportunities, doesn’t it? It’s an opportunity but there are no sure things. There is always the possibility that silver could become overvalued compared to other assets and volatility can do a lot of damage. As with every other investment strategy, caution and diversification should be part of it.