It’s Time to Start Talking About Silver

Silver: A Precious Metal for Precarious Times

We’ve been bullish on gold since early last year and, despite falling off its August all-time high of US$2,070, maintain our bullish stance. We’re just as bullish now as we were when we last wrote about gold in late August: Gold: Reading Between the Lines. 

Naturally, we’ve also been keeping a close eye on silver and can stamp el toro on our sentiment sheet for this precious metal, too. In fact, silver appears to have more room to run than gold does. While gold is trading near its all-time highs, silver is only trading at about half its historic peak. When gold gets into gear to reach new highs, silver will inevitably follow. 

Multiple 2021 Catalysts Poised to Drive Precious Metals Higher 

Trading in gold and silver has been rather muted so far this year. However, there is a confluence of catalysts in play that could give the dollar a hit and catalyze precious metals. Consider: 

• Public debt soaring
• U.S. deficit continues to worsen
• Little chance of U.S. Fed interest rate hikes 
• New U.S. Treasury Secretary supports more fiscal stimulus
• No near-term end to Global quantitative easing
• Democratic Control of U.S. government 
• Stock markets at all-time highs—priming for a bubble burst?

At some point all this massive spending and money printing is going to hit the dollar. When it does, the price of gold and silver will inevitably rise. Based on all of the catalysts in play, such a rise could be dramatic.

Silver Production Down as Demand Increasing  

Add to this a predicted decline in global silver mine production in conjunction with rising industrial demand. According to the Silver Institute, silver mine production has been declining since 2016 due to falling ore grades among major silver operations and a lack of new projects. The decline is expected to be steeper in 2021 due to operational shutdowns caused by the COVID-19 pandemic. Meanwhile industrial demand is expected to climb, based in part on enhanced U.S. focus on green technologies. The new U.S. government is already pushing the country away from fossil fuels. Many green technologies, such as solar panel photovoltaic cells, rely on silver.

Follow the Gold/Silver Ratio 

While the price of silver typically tracks with the price of gold, the two do not correlate in lockstep. Thus, silver investors use the gold-to-silver ratio to assess silver’s position in the precious metals cycle. This ratio tracks how many ounces of silver is worth one ounce of gold. A declining ratio indicates that the price of silver is getting more expensive relative to gold, while an expanding ratio indicates that silver is getting cheaper. The narrowing ratio suggests that a bull market is in play while an expanding one suggests bear market territory. 

The ratio has been in relative decline since hitting a recent high near 120:1 last March. At that time the price of gold had hit an all-time high while the price of silver had doubled. The ratio currently sits at about 73:1, an amount higher than the ratio has stood 75% of the time since 1960. Given that silver has to nearly double to breach its all-time highs it will likely take a significant price boost to bring the ratio to its median range. This could also require a tempering of gold’s price increase. 

Assuming that gold returns to its previous all-time high above US$2,000, silver would need to hit US$40 to bring the ratio down to 50:1. The price of silver would have to hit US$60—with a US$2,000 AU price—to bring the ratio down to its 10-year low of 35:1. All this to say that when gold and silver make their next leg up,  silver’s rise could prove more robust as it tries to close the ratio’s gap.  

Rather than the Metal Itself, Consider Silver Mining Companies         

Anyone who buys silver would be happy with a doubling or tripling of the precious metal’s price. But more highly levered gains from a precious metals bull run will more likely be realized by small individual exploration and mining companies that are sitting on top of major strikes. Consider that during the last bull market run in silver from May 2003-March 2008, the price of silver saw gains in excess of 330%. Certainly nice, but paltry when you consider that MAG Silver (NYSE: MAG) saw its share price gain 2,585%, while Endeavor Silver (NYSE: EXK) saw its rise by 2,025%.

As with gold, we are in the early days—first year—of what is going to be a substantial silver bull market. This market saw its first significant leg up from March-August. This was followed by some retraction in the fall and now the market appears to be in a relative holding pattern, waiting for the next catalyst to push it back into high gear.

Things to consider when making an investment in a silver mining company:

1. Financial Health: Look at the company’s financial statements to evaluate its overall financial health. Pay attention to key metrics such as revenue, profit margin, and debt levels.
2. Management Team: The quality and experience of the management team can have a significant impact on a mining company’s success. Look for a management team with a proven track record of successfully operating in the mining industry.
3. Mining Operations: It’s important to assess the company’s mining operations and the quality of its silver deposits. Factors such as production costs, mining methods, and geological risks can all impact the profitability of a mining company.
4. Silver Reserves: The amount of silver reserves a mining company has is an important factor to consider. Look for companies with significant reserves of silver that can be economically extracted.
5. Market Demand: The demand for silver can be influenced by a variety of factors, including industrial demand, economic conditions, and investor sentiment. It’s important to consider the current and future market demand for silver when evaluating a mining company.
6. Risks: As with any investment, there are risks involved with investing in silver mining companies. Some potential risks include changes in government regulations, environmental concerns, and geopolitical risks. It’s important to understand and evaluate these risks before making an investment.

By considering these factors and conducting thorough research, you can make a more informed decision about investing in silver mining companies.

As a general silver investor, here are some key things to know:

• Understand the factors that drive silver prices: Silver prices are influenced by various factors including industrial demand, global economic conditions, inflation, political uncertainty, and market sentiment.
• Stay up-to-date with market news and trends: Follow financial news and market reports to stay informed about price movements, market trends, and other factors that could impact silver prices.
• Diversify your portfolio: Don’t put all your eggs in one basket. Diversify your portfolio by investing in other assets such as stocks, bonds, and real estate. This will help you reduce your risk and protect your portfolio against market volatility.
• Choose the right investment vehicles: There are several ways to invest in silver, including physical silver, exchange-traded funds (ETFs), mutual funds, and mining stocks. Each investment vehicle has its own risks and benefits, so it’s important to choose the one that best fits your investment goals and risk tolerance.
• Have a long-term investment strategy: Silver prices can be volatile in the short-term, so it’s important to have a long-term investment strategy and stick to it. This will help you ride out market fluctuations and achieve your investment goals over time.