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The price of silver has been soaring higher over the past couple of weeks – up to an increase of more than 20%, shooting from $26 an ounce all the way up to $32 per ounce. But a monster rally in silver may just be getting started.
Let’s not forget that silver prices are still nearly $20 below their all-time high of $50, which was scored way back in 1980. Many market analysts are forecasting the price of silver to top not only $50 an ounce, but $100 an ounce in the not-too-distant future.
I think there are at least three strong fundamental factors that can continue pushing silver prices substantially higher:
Let’s take a quick look at these three basic potential drivers of value and higher prices for silver. They help to explain why many savvy investors are loading up more on silver – by weight – than they are on gold. (That’s not by any means meant to imply that gold isn’t a great investment right now – only that, however outstanding an investment gold is, silver may offer an even larger profit potential for investors.)
There are literally hundreds of millions of people, all over the world, who believe in the wisdom of investing in real money – i.e., gold and silver – but who can’t afford to buy even a single ounce of gold. With the per ounce price of gold nearing $2,500, even buying one ounce is out of the financial reach of the majority of the world’s population. Silver, currently at just a bit over $30 an ounce, is a much more affordable precious metals investment. Therefore, it only makes sense that as more and more investors add gold and silver to their portfolio, there will be a significantly larger number of investors buying silver rather than gold.
There has been a monumental increase in investor demand for silver, as can easily be seen in the huge demand increase for Silver American Eagles, which exploded from around 10 million ounces in 2005 to nearly 50 million ounces just 10 years later, in 2015.
Because it’s substantially less expensive per ounce than gold, silver is also a more practical vehicle of monetary exchange when being used as real-life currency. After all, even if you’re carrying just a 1/10th of an ounce coin of gold, that’s still equal to about $250US – not very practical to use to pay for a trip to the grocery store or filling up your car’s tank with gas. On the other hand, a one-ounce silver coin, worth approximately $31US, might turn the trick of paying for a gas fill-up just about perfectly.
Silver carries the same kind of historical value as gold. That is, it has been recognized as being real money and an acceptable medium of exchange throughout world history and all over the world. But silver is both more affordable than gold and is easier to implement using as an alternative currency. There’s an old saying: “Store wealth in gold – spend wealth in silver.”
In addition to its enduring value as hard currency, silver has another extremely strong value support beam – its widespread, and ever-increasing, practical industrial usage.
As a metal, silver has a couple of unique characteristics that keep it in high demand in manufacturing seemingly just about everything in the world that contains any amount of metal. Among all metals that we know of, it is the most efficient conductor of heat and electricity. This makes silver ideal to use in the construction of virtually anything electronic. That used to be – and still is – things such as televisions, radios, and musical equipment. But over the years, the number of industrial applications that require using huge quantities of silver have increased with every major advance in technology. All in all, there are literally thousands of industrial applications that use silver.
Silver is now utilized as a key component in batteries, cell phones, computers, solid state lighting (SSL), radio frequency identification (RFID) chips, and more. The list goes on and on. In particular, silver is a major required ingredient for “green” energy. In 2022 alone, the photovoltaic cells that are the main element used in providing solar power took up more than 225 million ounces of silver worldwide – almost 20% of global supply. It’s conservatively estimated that various green technologies will be using up more than 1.5 billion ounces of silver annually within the next decade.
Other areas of increasing industrial demand for silver include significantly higher usage in vehicle electronics and in medical devices. New medical applications for silver are being discovered and significantly increasing all the time. “Nanosilver” refers to very small silver particles that can be spread over large surfaces. Nanosilver is now being used, among other things, to help prevent infections, in everything from bandages to cooking utensils.
This next one sounds like an urban legend, but it actually turns out to be true. There are 500 ounces of silver in the nose cone of every US Tomahawk cruise missile. And it’s extremely doubtful (like, “Forget it – ain’t happening”) that those 500 ounces will ever be recovered once a missile has detonated.
Finally, the basic global industrial need for silver is growing at a rapid rate as emerging growth nations become more prosperous, thus increasing the production of electronic goods of all kinds for their populations. Beyond that big demand driver, an even more fundamental driver of silver demand is simply the continuing explosion of the world’s population. In short, 10 billion people need a lot more silver for a lot more things than two billion people need.
The rapid pace of the increasing industrial demand for silver is readily apparent even in just a single statistic – the percentage of total silver demand that industrial applications account for. In just a span of 15 years, from the turn of the century to 2015, the percentage of total silver demand that industrial uses of silver account for increased approximately 50% - going from about 40% of total demand to 60% of total demand.
Silver is always going to be valuable – even totally apart from its value as money and an investment – because of the tens of thousands of practical uses that it has.
A final factor that argues strongly for higher silver prices is the gold/silver ratio, the ratio that shows how many ounces of silver it takes to equal the value of one ounce of gold.
Historically, the gold-to-silver ratio remained relatively steady, normally somewhere around 15:1 to 20:1. That is, it remained relatively steady up until the eventful 20th century. However, since the gold standard was abandoned in the early 1970s, the ratio has tracked much, much higher – ranging primarily between 50:1 and 100:1.
The gold silver ratio just recently hit a new 12-month low, dropping down to 75. It had been above 90 just a couple of months ago, in early February, 2024.
A strong argument can be made for the gold/silver ratio to return to at least close to its historical norm. First, there’s the strong and growing demand picture for silver, as outlined above in this article. Second, there’s the fact that a ratio of 20:1 corresponds with the actual reality of how much silver exists in the world in relation to how much gold exists. It’s estimated that the earth contains approximately 19 ounces of silver for every one ounce of gold that it holds. Thus, a gold/silver ratio of 20:1 would simply be a more accurate reflection of the world’s relative supplies of gold and silver.
The noteworthy precious metals market analyst, Peter Schiff, the founder of Euro Pacific Capital, famous for loudly sounding economic alarm bells in 2006 and 2007, correctly foreseeing the 2008 financial collapse, is famously on record as saying that silver is essentially “on sale” any time the gold/silver ratio is higher than 70:1.
(Not to toot our own horn too much, but here, we’ve been forecasting a downtrend in the gold/silver ratio ever since it was up around 95.)
So, there you have it – three major basic, fundamental factors that are likely to continue driving the price of silver higher:
By the way, there’s a fourth strong fundamental underpinning value factor for silver that I haven’t even covered in this article – the growing discrepancy between the supply of silver and the increased demand for silver. Beyond the large and growing industrial demand for silver is the increasing overall, total demand for silver. This includes silver demand in the areas of investing and jewelry. Essentially, the total demand for silver is rapidly outstripping current mining production and supply. And it’s a basic law of economics that when demand is greater than supply, that equation is typically going to get balanced out by higher prices. I’ll cover the current overall basic supply and demand picture for both gold and silver in a future blog entry. But in the meantime, you can go ahead and mark down the overall supply and demand picture as just one more good reason to invest in silver.
Interested in learning how to buy gold and buy silver?
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Sources:
https://schiffgold.com/wp-content/uploads/2013/12/SchiffGold_Silver_Report_2021.pdf
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