From the Swiss America Archives
Silver has it all! Financial safety and amazing growth potential -- both over the short-term and especially over the longer-term.
Seeking Alpha's financial analyst Florian Grummes reports, "Gold's response to Covid was a 37% up move, while silver moved up 80%." Grummes expects silver prices to advance over threefold within the next 18-24 months to $74.40 an ounce!
And over the next decade, Leigh Goehring, managing partner of Goehring & Rozencwajg Associates is expecting gold prices to rise over five-fold to $10,000 an ounce and silver prices to explode over twenty-fold to $500 an ounce!
Why silver? Simply put, because silver serves as both a greatly desired investment metal and a extremely practical industrial metal. Industry experts believe this combination could send silver prices up between 50-100% in the coming year. Silver offers; an ongoing physical supply deficit, planned use in the construction of new roads, bridges, hospitals, schools and airports. Add to that the sharply rising demand from the solar industry and EV car batteries and silver looks set to blaze a trail to new heights in the next year.
Sprott Asset Management estimates that the silver market will record a physical deficit of 30 million ounces in 2019, the sixth consecutive year of physical shortfalls versus demand.
To exacerbate the current supply crunch, silver is facing rising new demand. All of that soldering, brazing, thermal coating and electroplating, as well as the countless bearings, switches, circuit breakers and batteries - will increase industrial silver use and could drive prices higher.
And we cannot forget massive spending to beef up the military which requires silver in guidance systems, circuit boards, batteries, etc. This spending, along with hefty tax cuts, will increase the federal deficit by trillions of dollars and stoke inflation. Like gold, silver also acts as an inflation and volatility hedge. Silver tends to move counter to the dollar and the markets. If either stumbles, investors could trigger a new rush to the white metal.
Ever since 2015 the world has faced a sizable silver supply deficit. What does this mean? Simply stated, mine production of the precious metal fell short of demand. As a matter of fact, all trend lines point toward lower silver production levels into the foreseeable future.
Some experts say we have now reached a global threshold of "peak silver" production. Rising demand and falling supply add up to higher prices in the future.
85% of total silver supply comes from mining, the rest is derived from scrap and recycled silver. While some silver is mined directly (as a primary effort), the majority is a byproduct of mining other metals like lead/zinc, copper and gold. Primary silver mining is currently about 30% of total supply while the mining of base metals: copper, lead and zinc accounts for about 56% of total silver production. Gold mining makes up the balance. Both primary and byproduct silver mine output declined last year in a new twist to the supply/demand ratio that could ultimately pave the way for much higher silver prices.
From 2004 to 2015, world silver production rose steadily and consistently but slipped in 2016, and 2017 - marking the first declines in a dozen years. The drop was primarily driven by lower production levels in Mexico, the world's largest silver producer, as a reaction to lower prices. There were also a host of byproduct facilities that went offline and additional base metal mine closures (i.e. zinc) that further constrained silver production. When we look back over the past decade, it becomes clear that 2015 was "˜peak silver' or the high point of silver mine output. World production projections for 2019 call for double digit drops from that peak level.
With world silver production now commencing a downward curve, we should anticipate recurring deficits and a chronic shortfall of supply in the face of ever increasing demand.
In such a supply-constrained environment, any sudden bump in global volatility or safe haven buying could create a full blown supply crisis and significantly boost silver prices throughout the year.
Perhaps you have heard about silver's double life as both an investment and an industrial metal. 50% of total silver demand comes from industrial applications. Silver is a vital component of manufacturing, electronic circuitry, radiography, and chemical production. It is widely used in photography, digital devices, medical instruments, automotive components, dental compounds, and water purification systems.
Demand from the photovoltaic industry increased to record levels, primarily fueled by solar installations in China. Silver ETF investing and exchanges also weighed heavily on demand.
Silver is also used in industrial fabrication for brazing, soldering, sealing - and is essential for engineering molded plastic parts like appliance knobs and handles. It forges strong bonds to help secure construction joints and metallic surfaces.
As a matter of fact, it is nearly impossible to build anything without silver and equally difficult to manufacture without the benefit of its conductive and catalytic action. As businesses expand, new companies are launched, and innovative industries are born in 2018 - silver will be an essential element to help machines, equipment, engines and electronics operate efficiently and cost-effectively.
Silver is also a state-of-the-art metal. As technology has evolved, new uses for silver have also emerged including applications for media storage, 3D Printing, weather modification, silver-bonded fabrics, and electric cars.
By far, silver's greatest industrial demand comes from solar power. It is a primary component of photovoltaic cells, commonly known as solar cells. It not only enhances the reflection of light to boost energy collection, it also helps prepare and transport the energy for ultimate use.
Last year silver demand from solar power increased by 10% to a record high of 87 million ounces, marking a fourth straight year of growth. China represents some 70% of new solar installations as they look to triple their solar footprint by 2020.
Under their 13th Five Year Plan, (a social, political and economic strategy), China outlines an additional 15 to 20 gigawatts of solar capacity each year for five years. To put this in perspective, it takes 236 metric tons of silver per gigawatt of solar energy. So to meet its goals, the Chinese plan requires some 26,300 metric tons of silver or over 731 million ounces. China currently boasts 43.2 gigawatts of solar energy followed by Germany with 38.4 gigawatts and the US with 27.8.
A stronger US dollar in 2018 has also also triggered a rebound in global computer sales, where silver is found in circuit boards, keyboard membranes, computer chips, and electronic switches. Smartphone shipments, which rely even more heavily on silver, are also poised to rise. When we consider that a ton of iPhones would yield over six times more silver than a ton of ore (from which it is typically extracted) it helps to underscore silver's critical role in electronic products. Silver's industrial applications will likely continue to drive demand and increase the supply deficit through 2019 particularly in light of the new pro-growth business policies.
Growth in silver demand will also be motivated by increasing auto sales, particularly in developing countries, and the rise of new technology.
Although Electric Vehicles (EVs) and Hybrid Electric Vehicles (HEVs) currently comprise just 6% of new global automotive production in 2018, according to the 2018 World Silver Report they will become much more prominent in the medium term, bolstered by national regulations that will curb Internal Combustion Engine (ICE) vehicle sales.
Among the many countries proposing future bans on ICE vehicles are China and India, whose emerging middle classes are major drivers of global auto sales. China has proposed a ban on sales of new ICE vehicles by 2025, while India has announced plans to become 100% electric by 2030. EVs and HEVs are projected to account for over half of global automotive silver demand by 2040.
In the Spring of 2020 silver prices traded at about 15.00 an ounce, sending the historic Gold-to-Silver Ratio over 120-to-1, the highest level in history! This ratio represents the number of ounces of silver it takes to buy one ounce of gold.
Historically, the Gold-to-Silver ratio has fluctuated between as low as 15-to-1, which was originally established by the Coinage Act of 1792, to a high of 100-to-1 during the U.S. recession of 1990-91. The average ratio is about 56-to-1 over the last 48 years.
The so-called "Ratio Trading Strategy" has been used in precious metals for hundreds of years as a smart means of increasing metals holding over time - especially during opportunities like today with such a distorted Gold-to-Silver ratio.
As an example, let's say you purchased 1,000 ounces of silver today at $15/oz ($15,000) and the Gold-to-Silver ratio returns to the historical average of 56-to-1; your silver holdings would increase in value from $15,000 to $30,000. Or, if the ratio returned to the extreme low of 20-to-1, your silver holding would zoom up in value to $60,000 - without even a one cent increase in the price of silver!
At that time it may prove advantageous to consider trading your 1,000 ounces of silver into gold. And, if the Gold-to-Silver ratio were to reverse, you could potentially double or triple your silver holdings without spending a penny. This approach allows wise traders to increase their overall precious metals holdings regardless of price movement. Your Swiss America broker can explain further.
By any measurement, the price of silver has plenty of room for growth in the near future. If silver prices just went back to the high of $48/oz. in 2011, that would represent over a threefold increase!
Silver is an easy entry point into the precious metals arena. Silver is not only affordable, but also has the inherent benefit of "˜double demand' in both the industrial and investment sectors. In addition, the silver market is small and during periods of economic turmoil it doesn't take much "˜buy-in' to send prices substantially higher.
Lastly, while the Feds have been known to seize gold, silver has never been the target of U.S. confiscation.
With the price of base metals increasing, bonds yields climbing, and oil rising - most experts are calling for inflation to spike in 2020. But isn't some inflation good? Yes, moderate levels of inflation actually help drive consumption and boost economic output. But if inflation rises too dramatically, it can render paper money worthless; and if it falls too low, it impedes economic growth. It is truly a delicate balance.
Runaway inflation, however, can wreak havoc and completely destabilize the economy, such as we have seen this year in Venezuela, Brazil and Turkey. Between this year's proposed Fed rate hikes and Trump's ambitious government spending plan, inflation is making a comeback - and there is a lot of fear that it may rise unabated.
So in addition to being an industrial metal silver also serves as a critical inflation hedge. It has provided a safe haven for countless generations of investors. After dropping in value over the past few years, we believe silver prices are set to rebound in 2020. Much like gold, it is a known long-term store of value.
Silver was one of the first five metals discovered by humans and is the world's oldest form of coinage. The earliest silver coins date back to Asia Minor in 600 BC. Gold was not the only metallic standard. The Silver Standard - which converted currency into fixed amounts of silver - extended from the 15th century to the 19th century. And, while silver is no longer legal tender, some countries continue to mint popular silver bullion coins; like the American Silver Eagle, the Canadian Silver Maple Leaf, and Austrian Silver Philharmonic.
Silver is an amazingly versatile metal, and in 2021 it faces rising industrial and investment demand as well as a host of new infrastructure applications. President Trump has stated that he loves gold, but has likely utilized much more silver over his lifetime.
For all of the reasons outlined in this report, we believe silver will be a win-win asset in the years ahead.
As an industrial metal silver is indispensable. As an investment metal, it helps to protect wealth and purchasing power. And, because of its many applications, it is prone to critical shortages. A world of new volatility may await us in 2021.
Call a Swiss America Representative at: 1-800-289-2646
Or go online at: www.SwissAmerica.com
REFERENCES
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