Weekly Market Update by Retirement Lifestyle Advocates

Periodically, I like to discuss a particular asset class and the current investing environment for it.

This week, I want to talk about silver.

As many of you are aware, I think silver has some of the best upside potential of almost any asset class.  There are several reasons for this.

The first is the inflationary environment that presently exists.  Despite the Federal Reserve now signaling a pivot or lower interest rates this month, the inflation battle has not been won.

While the official inflation rate has slowed, consumer price increases experienced over the past four years or so are baked into current prices.  A slower rate of inflation simply means that these already high prices are still rising, albeit more slowly than they were rising previously.

With near-certain higher inflation ahead with this upcoming Fed policy shift, I expect that tangible assets, particularly gold and silver, will continue to perform well.

To this point, gold has outperformed silver., it’s precious metals counterpart.  I believe that this could potentially change moving ahead.

One of the reasons is the silver-to-gold ratio.  As I write this, the current spot price of gold is $2,510.30, and the spot price of silver is $28.16.  Dividing $2,510.30 by $28.16 gives us a silver-to-gold ratio of 89.14.

That’s very high by historical standards.  Since the US Dollar became a fiat currency in 1971, the silver-to-gold ratio has been about 50.  Note the chart below illustrating the silver-to-gold ratio since 1970.

If the silver-to-gold ratio were to return to this level of 50, that would bring silver back (approximately) to its all-time high of $50 per ounce.  If gold moves to $7,000 to $8,000 per ounce, which would not be surprising given what gold has done in prior bull markets, the price of silver per ounce could possibly see $150.

A move of that magnitude would be 500% from current spot silver prices.

The second reason I think silver could move much higher is that industrial demand for silver exceeds mining output.  (Source:  https://www.moneymetals.com/news/2024/04/19/silver-demand-outstrips-supply-for-third-straight-year-003135).  This is the third year in a row that has been the case.

Silver mining output fell by 1% in 2023 to 830.5 ounces.  That’s per the Silver Institute.

Demand also fell in 2023 by about 7%.  But demand, despite the decline, was still 1.2 billion ounces.  And, to put the decline in perspective, silver demand was at a record high in 2022.

A little math has one concluding that the mining output of silver falls short of industrial demand for silver by 369.5 million ounces. 

Industrial demand is growing due to the increased emphasis on green energy.  The Silver Institute reports that ‘higher than expected photovoltaic (PV) capacity additions and faster adoption of new-generation solar cells raised global electrical and electronics demand by a substantial 20 percent.  At the same time, other green-related applications, including power grid construction and automotive electrification, also contributed to the gains.”

Silver demand from China increased by an eye-popping 44 percent to 261.2 million ounces, also primarily for green applications.

Silver is an important element in the production of solar panels, used to conduct electrical charges out of the solar cell and into the system.  While each solar panel uses only a small amount of silver, given the current level of solar panel production, which is expected to increase, these small amounts of silver really add up.

According to research conducted by scientists at the University of New South Wales, solar manufacturers will likely require over 20 percent more silver by 2027 than presently.  By 2050, solar panel production is projected to consume 85% to 98% of current global silver reserves.

From a fundamental perspective, the outlook for silver is bullish long-term.  Of course, as anyone who has followed the silver market knows, silver prices can be extremely volatile, so a rise in silver prices is likely not to be a smooth ride.

Finally, as analyst Michael Maharrey points out, a long-term price chart of silver prices reveals a cup and handle pattern.  The chart below is reprinted from Maharrey’s analysis.

A cup and handle pattern is a bullish pattern with the ‘handle’ portion of the chart often preceding an upward price breakout.

Looking at the chart below, you can see the ‘cup’ with the dual highs at about $50 per ounce in the years 1980 and 2011.  After the 2011 peak occurred, there is a price decline and then a price consolidation pattern known as the ‘handle’.

When studying other historical cup and handle patterns, the longer the pattern is the bigger the price breakout often is.

It is for these reasons that I remain bullish on silver long-term.  If you’d like to explore the best ways to add physical silver to your portfolio, give the office a call at 1-866-921-3613.  We’d be pleased to offer you some more information and guidance with no obligation.

This week’s RLA radio program features an interview that I did with Mr. Peter Schiff.     

The radio program is posted and available now by clicking on the "Podcast" tab at the top of this page.  The weekly Headline Roundup newscast is also posted there.  If you haven’t yet done so, check out the free resources available on the website.

“Government has no wealth and when a politician promises to give you something for nothing, he must first confiscate that wealth from you – either by direct taxes or by the cruelly indirect tax of inflation.”

                                                      -John Wayne