Gold has central bank support while silver does not. Goldman Sachs: A slight decrease in investment amount will also lead to a significant correction in silver prices

Goldman Sachs warns that although silver also benefits from private investment inflows, its price volatility is significantly higher than that of gold due to the lack of structural purchases by central banks. Even a slight withdrawal of investment funds could trigger a substantial adjustment in silver prices.

According to news from the Chase Trading Desk, Goldman Sachs stated in a report on October 12 that as the Federal Reserve's interest rate cuts attract capital inflows, the medium-term trend for silver is still expected to rise further, but the volatility and downside risks it faces in the short term far exceed those of gold.

Analysts indicate that the liquidity in the silver market is poor, and its scale is only one-ninth that of the gold market, which amplifies price fluctuations. Additionally, silver is the only commodity lacking structural buying support from central banks, meaning any temporary retreat in investment inflows could lead to disproportionate price corrections.

Private Investment Drives Precious Metal Correlation

Goldman Sachs states that silver and gold prices are usually correlated because the main driver for both—private investment inflows—tends to move in sync. Historically, this correlation has kept the gold-silver price ratio within a wide range of 45-80.

However, since 2022, with a surge in central bank gold purchases, gold prices have been able to rise even without private investment inflows, while silver, lacking central bank buying support, has lagged. Currently, silver has risen nearly 70% this year, bringing the gold-silver price ratio down to about 80, returning to the upper end of the range before 2022.

Goldman Sachs estimates that 1,000 tons of silver inflow typically drives silver prices up by about 1.6%. Due to the smaller scale and insufficient liquidity of the silver market, the impact of the same scale of capital flow on silver prices is significantly amplified.

Tightening Liquidity in the London Market Fuels Price Surge

Goldman Sachs points out that the recent surge in silver prices is partly due to tightening liquidity in the London market. Earlier this year, concerns over potential tariffs from the U.S. led to a large amount of silver being shipped to the U.S., causing inventories in London, the global silver trading center, to drop to low levels.

When demand for silver ETFs rapidly increases and absorbs more physical silver, a temporary supply shortage occurs in the London market. To manage this shortage, traders turn to the borrowing market, driving silver borrowing rates sharply higher, indicating short-term market tightness.

Goldman Sachs expects this imbalance to eventually normalize, as higher prices in London will incentivize silver to flow back from the U.S. and other regions, gradually restoring market liquidity.

Lack of Central Bank Support Constitutes Key Risk

Goldman Sachs emphasizes that the biggest risk facing silver is the lack of structural support from central banks. Three main factors make it unlikely for central banks to purchase silver on a large scale as a reserve asset.

First, the physical characteristics of gold are more suitable for reserve management.

Gold is about ten times scarcer than silver, valued at 80 times more per ounce, and has twice the density of silver, making it more efficient in terms of storage, transportation, and security. A $1 billion gold reserve can fit into a briefcase, while the same value in silver would require a full-sized truck Secondly, silver lacks the institutional and economic attributes that support gold.

Silver is not recognized in the IMF reserve framework and has no substantial position in modern central bank portfolios. Its industrial uses give it pro-cyclical characteristics, resulting in greater volatility and poorer liquidity, which diminish its practicality as a reserve asset.

Thirdly, even if gold prices rise, central banks will not turn to silver.

Central banks manage value rather than weight; gold reserves are held passively, and if prices structurally rise, the amount of gold needed to maintain a fixed dollar allocation will correspondingly decrease.

Bullish in the Medium Term but Short-Term Volatility Risks Are Prominent

Despite facing numerous risks, Goldman Sachs still believes that the most likely trend for silver in the medium term is further increases: An additional 100 basis points of Federal Reserve rate cuts by mid-2026 will attract capital inflows.

However, in the short term, silver faces significant volatility and two-way risks. If ETF inflows experience a temporary decline, or if silver flows back to London from other regions to ease supply tightness, it could trigger a price correction.