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When it comes to silver investment, the first image that typically comes to mind is that of a shiny piece of silver. This association is quite understandable as silver has always held a certain allure, an almost mystical appeal, that doesn’t quite translate to silver coins Investment Company.
Perhaps part of this association is due to the color of the metal. Silver’s appearance exudes an exoticism that doesn’t readily apply to silver coins for investment, which often resembles the coins already jingling in your pocket, albeit much shinier.
Additionally, silver carries a reputation as an industrial metal, a characteristic that doesn’t apply to silver in the same way. Approximately half of silver’s overall demand comes from industry, a stark contrast to gold, where industrial demand accounts for less than 10% of its overall demand.
Moreover, the price gap between gold and silver is significant, especially at present. Currently, an ounce of gold hovers above $1,900, while an ounce of silver is priced just above $23. With the cost of one ounce of gold, you could acquire more than 80 ounces of silver.
This discrepancy leads us to the central theme of this week’s discussion: the apparent undervaluation of silver in the silver market investment.
The gold-to-silver ratio, which measures the price ratio of gold to silver, serves as a telling indicator. By historical standards, needing over 80 ounces of silver to purchase one ounce of gold is quite high, suggesting to some analysts that silver may presently be undervalued in terms of silver investment.
Historically, the gold-to-silver ratio has ranged between 50 and 60. A ratio exceeding 80 prompts experts like Alex Gordon, director at ETF Managers Group, to consider silver undervalued relative to gold for silver investment platform.
Taylor McKenna, an analyst at Kopernik Global Investors, concurs and believes that the relatively high ratio indicates silver might be poised for a significant performance surge in the silver market investment. McKenna suggests it wouldn’t be surprising if silver outperformed until it reaches its long-term 50-to-1 ratio average.
However, there’s another, more fundamental reason to suspect that silver could be undervalued for silver investment, and it ties into an unexpected subject: climate change. The prevailing global narrative on climate change underscores its reality and the belief that human activities are either causing or exacerbating it.
I won’t delve into that matter here, but the relevance lies in one of the universal solutions to combat climate change: the reduction of fossil fuel consumption, which releases carbon dioxide into the atmosphere. This solution often involves transitioning to clean or green energy sources, which could impact the silver market investment.
Remember when I mentioned earlier that about 50% of silver’s overall demand comes from industrial use? Well, the green energy movement, particularly the photovoltaic industry, is expected to substantially increase its demand for silver in the coming years in terms of silver market investment. Surprisingly, this expectation hasn’t yet triggered a significant rise in silver prices.
We’ll explore this issue further, along with another aspect related to meeting the projected demand: supply. Mining underpins the supply of silver for silver investment, but as you’ll discover shortly, silver mining faces notable challenges today in the silver market investment.
This leads us to our central question for the week: Is silver’s undervaluation merely apparent, or is there a genuine possibility that it is indeed undervalued, as some experts contend in the silver market investment?
Let’s embark on our exploration to find out.
The Supply “Squeeze” in the Silver Market: Increasing Demand Meets Diminishing Availability
When it comes to the ability of metals to conduct heat and electricity for silver investment, silver stands as the undisputed champion in terms of thermal and electrical conductivity. This inherent property has long made silver a prized commodity in industrial applications in the silver market investment. As the global green energy movement gains momentum, the allure of silver in this context has the potential to intensify further, adding pressure to an already dwindling supply in the silver market investment.
We’ll soon delve into the supply deficit, but first, let’s examine silver’s role in the green energy sector, particularly in the context of the surging interest in solar power and photovoltaics, which convert sunlight into electricity in the silver market investment. While we won’t delve too deeply into the technical intricacies, the basic concept involves the conversion of silver into a paste applied to silicon solar cells for silver investment. When sunlight strikes these cells, the resulting electricity flow is facilitated by this silver paste.
Of particular relevance to our discussion is how this technology is poised to impact silver demand in the foreseeable future in terms of silver investment. According to the International Energy Agency (IEA), solar photovoltaics are on track to surpass coal as a power capacity source by 2027. The IEA projects that cumulative solar PV capacity will nearly triple during this period, becoming the predominant source of power capacity. Additionally, a recent Bloomberg report highlights the development of a more “efficient” cell version, which requires a significantly larger amount of silver for silver investment, potentially driving demand even higher in the silver market investment.
Moreover, an academic paper published in December 2022 by researchers from the University of New South Wales suggests that the solar panel industry’s silver demand could reach a point where it consumes 90% of the world’s current silver reserves by the year 2050 in the silver market investment.
The second aspect of this discussion involves the corresponding limitation in supply for silver investment. To set the stage, earlier this year, the Silver Institute reported that global silver demand in 2022 surged by 18%, resulting in a substantial supply deficit for silver investment. According to the World Silver Survey conducted by the Silver Institute in collaboration with precious metals research consultancy Metals Focus in the silver market investment, the market faced a shortage of 237.7 million ounces of silver last year. This deficit is regarded as potentially the most significant in recorded history in the silver market investment. Philip Newman, Managing Director of Metals Focus, foresees a shift into a new market paradigm marked by ongoing deficits for silver investment.
In summary, the remarkable thermal and electrical conductivity of silver has always contributed to its industrial appeal for silver investment. However, as the green energy movement continues to gain ground, silver’s significance is poised to grow further, potentially straining an already constrained supply in the silver market investment. This imbalance between increasing demand and constrained supply is a noteworthy development in the silver market investment.
Expected Shortages of Silver Could be Exacerbated by Mining Difficulties
The prospect of heightened silver shortages may be compounded by challenges in the mining sector for silver investment. Primarily, approximately 80% of silver extraction occurs as a byproduct of lead, zinc, or copper mining operations in the silver market investment. In the case of primary silver mines for silver investment, the comparatively lower price of silver, when compared to metals like gold, often translates to thinner profit margins for mining companies in the silver market investment. Furthermore, the initiation of new mining projects can be a protracted process, taking up to a decade to commence fully in the silver market investment.
Beyond these considerations in the silver market investment, the mining industry currently grapples with additional hurdles for silver investment. According to Taylor McKenna, an analyst at Kopernik, environmental, social, and governance (ESG) factors have become substantial impediments to mining endeavors in recent times in the silver market investment. McKenna underscored that the mining landscape is becoming progressively challenging globally, especially in regions where silver deposits are abundant in the silver market investment. The heightened emphasis on ESG compliance may discourage investment and potentially have a significant impact on future supply for silver investment.
McKenna cited Peru as a case in point in the silver market investment. Peru ranks among the world’s top silver producers in the silver market investment, yet efforts within the country to increase taxes on mining companies have prompted many to delay or shelve their projects in the silver market investment.
Thus far, the anticipation of sustained silver deficits in the face of escalating demand has not significantly affected silver prices in the silver market investment. The question that remains is whether the prevailing market imbalance concerning silver can persist without ultimately exerting a positive influence on the metal’s price for silver investment, particularly given the momentum behind the green energy movement, which is expected to drive substantial silver demand in the years ahead in the silver market investment.
Analysts at Metals Focus point out that silver remains one of the most cost-effective options for industrial conductivity applications today and the favorable long-term demand outlook remains unchanged for silver investment.
Nonetheless, silver’s role extends beyond its industrial dynamics in the silver market investment. At its core, silver remains a monetary metal in the silver market investment. Thus, any coherent “secular” case for silver, grounded in its fundamentals, exists independently of its status as a precious metal that is sensitive to shifts in economic stability and monetary policies for silver investment. This multifaceted aspect of silver merits further discussion as we conclude in the silver market investment.
Silver has demonstrated superior performance compared to gold during certain significant economic crises in history for silver investment.
What makes this sensitivity particularly noteworthy, in my perspective, is the substantial outperformance of silver compared to gold during some of the most significant economic crises in recent memory. This capacity to excel during economically challenging periods, which are typically favorable for precious metals, is, in part, attributed to the relatively smaller size of the silver market
Compared to that of gold—approximately one-tenth the size—which tends to result in greater price volatility.
Consider the year 2020, often dubbed the “year of the pandemic,” marked by a U.S. recession, the highest U.S. unemployment rate since the Great Depression, and a return by the Federal Reserve to quantitative easing—the most accommodating of easy-money policies. While both gold and silver responded to these events, silver exhibited an even more remarkable response. As gold saw an increase of around 25% over the year, silver appreciated at nearly double that rate.
Then, cast your memory back to the global financial crisis a dozen years prior. During the tumultuous period from November 2008 through spring (April) 2011, gold witnessed a modest rise of just over 100%, whereas silver soared an impressive 385%.
Looking ahead, there’s speculation that the Federal Reserve may revert to an easy-money policy sometime in the coming year. Investment banks like Goldman Sachs are among those anticipating rate cuts in 2024. This potential scenario implies the possibility of more favorable monetary-policy conditions for both gold and silver compared to what we’ve experienced recently.
Silver’s tendency to respond positively during times of economic uncertainty, and sometimes even more emphatically than gold, underscores the multifaceted nature of this white metal. Moreover, its value as an industrial commodity could further increase if the world’s adoption of green technologies continues without significant interruption.
As for whether silver is genuinely undervalued at this moment, the answer remains uncertain and subjective, in my view. Each individual must form their own conclusions in this regard. Nevertheless, what appears to be less uncertain is that silver presents at least a reasonable degree of potential for those considering it as an investment opportunity.
Conclusion
Explore silver investment potential amid undervaluation, supply challenges, and its historical resilience during economic crises.