Gold is supported by central banks while silver is not. Goldman Sachs: Even a slight decrease in investment can lead to a significant correction in silver prices.

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Goldman Sachs warns that although silver also benefits from inflows of private investment, due to a lack of structural buying support from central banks, its price volatility is significantly higher than that of gold, and even a slight withdrawal of investment funds could trigger a substantial correction in silver prices.

According to news from Wind Chasing Trading Desk, Goldman Sachs said in a report on October 12 that silver still has the potential for further mid-term gains as Fed rate cuts attract capital inflows, but faces much greater short-term volatility and downside risk compared to gold.

Analysts stated that the silver market is less liquid and is only one-ninth the size of the gold market, which amplifies price swings. In addition, silver is the only major commodity lacking structural central bank purchases, so any temporary drop in investment inflows may trigger a disproportionate price correction.

Private Investment Drives Precious Metals Correlation

Goldman Sachs noted that silver and gold prices are typically correlated since their main driver—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 the surge in central bank gold purchases, gold prices have risen even without private investment inflows, while silver, lacking central bank buying, has lagged behind. Currently, the annual gain in silver nears 70%, bringing the gold-silver ratio down to around 80, returning to the upper boundary of the pre-2022 range.

Goldman Sachs estimates that an inflow of 1,000 tons of silver typically boosts prices by about 1.6%. Due to the small size and low liquidity of the silver market, fund flows of the same scale have a significantly magnified impact on silver prices.

Liquidity Squeeze in London Boosts Silver Rally

Goldman Sachs pointed out that the recent surge in silver prices partly stems from a liquidity squeeze in the London market. Earlier this year, concerns over potential US tariffs prompted large quantities of silver to be shipped to the US, resulting in inventory in London—the global trading center for silver—falling to low levels.

When ETF demand for silver rose rapidly and absorbed more physical silver, the London market experienced a temporary supply shortage. To manage this shortage, traders turned to the leasing market, driving silver lease rates sharply higher, indicating short-term market tightness.

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

Lack of Central Bank Backing Is a Key Risk

Goldman Sachs emphasized that the biggest risk facing silver is the lack of structural support from central banks. There are three main reasons why central banks are unlikely to buy large amounts of silver as reserve assets.

Firstly, the physical properties of gold are more suitable for reserve management.

Gold is about ten times rarer than silver, worth 80 times more per ounce, and is twice as dense, making it more efficient for storage, transportation, and safekeeping. $1 billion in gold reserves can fit in a briefcase, while an equivalent 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's reserve framework and has no substantial role in modern central bank portfolios. Its industrial use imparts pro-cyclicality, higher volatility, and less liquidity, diminishing its usefulness as a reserve asset.

Third, even if gold prices rise, central banks will not therefore shift to silver.

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

Bullish Outlook for the Mid-Term, but Short-Term Volatility Risks Stand Out

Despite the risks, Goldman Sachs believes the most likely mid-term trend for silver is further upside: by mid-2026, an additional 100 basis points of Fed rate cuts will attract capital inflows.

However, in the short term, silver faces significant volatility and two-way risk. If ETF inflows temporarily subside, or if silver flows back to London from other regions and eases supply tightness, both could trigger a price correction.

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