How a Copper Rebound Could Supercharge Silver's Rally

The price of copper is an often overlooked factor in silver's performance. Its decline over the past several months has weighed on silver, but it now appears poised for a rebound.

For most investors, gold and silver are inseparable, like peanut butter and jelly or two peas in a pod. This mindset leads them to look at gold for signals on silver’s future price movements, and vice versa. Although silver’s price is indeed strongly influenced by gold, few realize the significant role that copper also plays in shaping silver’s price movements. In this article, I’ll explore how copper’s price influences silver and demonstrate how a potential copper rebound could amplify silver’s emerging rally.

To understand the price relationship between two assets, examining their correlations can be highly insightful. Not surprisingly, gold and silver exhibit a strong correlation—.771 over the past five years and an even higher .917 over the past year. What's particularly striking, however, is the strong correlation between copper and silver—.725 over the past five years and an impressive .878 over the past year. This strong correlation is a compelling reason for silver investors to monitor copper as closely as they do gold.

The strong price relationship between silver and copper is clearly reflected in long-term charts of the silver-to-copper ratio, which has remained remarkably consistent over time, despite periodic fluctuations around the average of 6.27:

The close relationship between silver and copper can be attributed to factors influencing both supply and demand. From a supply standpoint, silver is seldom mined on its own. Instead, it is typically a byproduct of copper and other metal mining, such as lead, zinc, and gold. On the demand side, both silver and copper have substantial industrial applications, driving significant industrial demand for both metals.