But what about silver?

Since the silver price tends to be more volatile than gold, and because more than half of silver demand comes from industrial use, you might not think of silver as a haven. But historically, silver has outperformed gold during periods of geopolitical and financial uncertainty, as shown by a recent report by Capitalight Research prepared for the Silver Institute.

What do we mean by safe haven?

Investors prefer a safe haven asset during times of political or economic uncertainty. They expect haven assets to maintain their price and possibly rise during chaotic times, even as most traditional assets fall in price. A safe haven's performance during these periods tends to hedge a portfolio, minimizing overall losses.

During periods of geopolitical uncertainty such as war, terror attacks, and significant political shifts (like the recent presidential election in the U.S.), investors tend to shun risk due to the high levels of uncertainty. They turn to safe-haven assets to preserve the overall value of their portfolios until the crisis passes.

Assets with little counterparty risk tend to make the best safe havens. Counterparty risk is the possibility that the party on the other side of a transaction might not fulfill its obligation. As the report points out, "This risk is critical in financial markets as it can lead to significant disruptions, especially in interconnected systems where the failure of one entity can trigger a cascade of defaults."

Silver and Geopolitical Tumult

According to the analysis by Capitalight Research, silver has performed well during times of geopolitical chaos. For instance, safe haven demand as Ukraine tensions escalated reversed the previous downward trend in the silver price that occurred during the second half of 2021 as investors anticipated Federal Reserve rate hikes.

Capitalight analyzed silver's performance during several geopolitical upheavals dating back to 1979.