Why isn’t the Silver Price Soaring to new heights?
Was there ever a metal with as much potential as silver? Silver boasts promising fundamentals and vast scope for price rises. On the one hand it’s a monetary metal, so its price should rise for all the same reasons as Gold. Currency debasement, suppressed interest rates, inflation, political instability. All should benefit silver. Silver is an asset outside of the financial system. Like gold, it is nobody else’s liability. So why isn’t Silver skyrocketing in price.
It’s an industrial metal that has myriad uses, particularly in new technology. Its uses will only increase as the world gets more “electronic”. Computers, mobile phones, batteries, cars, engines, media storage, engines, explosives, plastics, cameras, they all require silver. Industrial demand is set to explode. So why isn’t silver exploding in price? The Gold Silver Ration is also way out of whack. It’s historical average is 15 and it now sits at 85. All these factors suggest someone or something is holding silver back.
Silver boasts promising fundamentals
New uses for silver are being discovered
New discoveries are being made all the time about its ability to combat infection, fungi, bacteria and even odors. Demand is increasing from medicine, biotechnology and clothing. Silver is used in everything from electronics to purifying water. It is used in medicine to combat harmful bacteria. Coating walls with paint containing silver particles helps fight harmfull infections. The use for Silver goes on and on.
Demand for silver on photo-voltaic cells has gone from one million ounces in 2000 to around 50 million ounces last year. 5% of silver’s annual supply and growing. Assuming solar power usage grows, demand for silver will increase. Then there is jewelry and demand from investors. These two areas jointly accounted for roughly 400 million ounces last year. The car industry is also projected to need an ever increasing amount of silver for electronic vehicles. All this while supply has been dwindling.
Is there a shortage of Silver coming?
At the same time there could be a shortage of supply. About 80% of silver’s billion-ounce annual demand comes from mining, the rest from scrap. There has been a paucity of major new discoveries. Many of the pure-play silver miners have struggled to make money in recent years and investment in exploration is minimal.
Meanwhile, a great deal of silver is produced as a by-product of lead and zinc mining, another area where investment has disappeared. Silver runs an annual supply-demand deficit. There has been a surplus in only one of the past five years. Last year’s deficit was 30 million ounces. All this should be a reason that the price of silver should be exploding higher. So why isn’t it?
Silver is a bargain
Silver is cheap. At $17.50 an ounce, silver now sits some 65% off its all-time high of $50. Silver is also a great bargain right now relative to gold. One ounce of gold is 85 times the price of an ounce of silver. A geologist will tell you that ratio should be closer to 15. There is only 15 times as much silver in the earth’s crust as there is gold. 15 is the historical monetary ratio between the two. Even in recent decades, with silver’s monetary status long gone, the long-term average sits closer to 50 than 85. All this points to silver being the bargain of the new decade.
Relative to other assets, such as the stockmarket, silver is a bargain too. If silver returned to its long-term average ratio against the FTSE or the Dow silver would have to rise to the $50, $100, or $200/oz regions. In 1980 you could buy the average UK house (currently over £200,000) for about 1,000 ounces of silver (currently $17,500). Silver would have to rise 15-fold – to something over $200 – for that particular ratio to be achieved again. In short, what’s not to like? Silver seems to have so much going for it. So why isn’t the price of silver hitting new highs when it has such fundamentals working for it?
Silver lining has a cloudy appeal
There could be two hypothesis for the price of silver. One is that someone or something is holding the prices back. Another is that is just an out of vogue investment. What happens when one of these variables is removed is anybody’s guess. My guess is an explosive move to the upside for silver. What is yours?
Past performance does not always tell one of future performance but let’s take a look at the 2019 ending of the silver price. It ended with a bullish year and 2020 and beyond is even looking better. Is it finally silver’s turn to be a favorite among investors? Maybe.