The shining future of silver
A volatile year
One month to go and one of the most volatile investment years ever has come to an end. Lockdowns that brought the economy to the brink of collapse, historically unprecedented central bank support operations to keep the markets afloat, and ongoing uncertainty on the political front. All the more reason for investors to resort to relatively safe investments. Or investments that suffered little or nothing from the pandemic. It was therefore not so strange that the precious metals began to shine again. The main focus was on the renewed glory of gold. In the wake of his big brother, however, silver did even better.
The metal of the devil
Gold usually attracts the most attention as soon as there is turmoil in the financial markets. This is also the case of this spring. After an initial fall in prices – along with the rest of the market – in the spring, the price of gold rallied by 40% until the summer. Much more spectacular, however, was the rally in silver. After an initial dip, the price of the devil’s metal – as it is also known for its great agility – rose by over 140 percent until the summer. At a peak of over $29 per Troy ounce the rally stopped and then dropped back a little, to a price of over $23 now. For the record, that is still 30% more than at the beginning of the year.
More than a safe haven
Nowadays silver is often seen together with gold as a safe refuge. In contrast to its big brother, however, silver is much more than that. Where gold has hardly any industrial applications and is largely used as a store of value, 85% of silver is used for industrial purposes. Think of solar panels, mobile phones, iPods, DVDs, and electric cars. Silver can be found in almost every electronic device. If something has an on/off button, silver is involved. The solar industry alone accounts for 18% of the total demand for silver. For example, the new administration of the United States is planning to install 500 million solar panels over the next five years. Goldman Sachs expects an increase of 50%. Of course, the producers of solar panels are busy reducing the amount of silver needed per panel, but it will not eliminate demand.
Share in 5G
In addition to its share in the green revolution, silver also plays an important role in the roll-out of 5G. The large-scale worldwide development towards 5G will become one of the main drivers of demand for silver in the coming years. The demand for ultra-fast internet and the upgrading of existing networks would not be possible without the precious metal. And the global electrification of the automotive fleet would not be possible without silver either. Battery-driven cars will further increase silver consumption. Indeed, as cars become more sophisticated, they require more quantities of silver.
While the demand for silver will increase, the supply will falter. For example, according to The Silver Institute, approximately 900 million ounces of silver are consumed in an average year, while only 700 million can be produced by silver mines. On top of this, this year’s coronavirus mines in key producer countries Mexico and Peru had to be closed. On balance, the world’s supply of silver is consumed every year. Over the past 60 years, global gold production has increased by 600%, but silver production has decreased by 97%.
Drop in the value of the dollar
Add to that the broad monetary policy of the central banks. By letting the money presses run at full speed, the Federal Reserve has not exactly helped the value of the dollar. And in all probability, it will not do so in the coming years either. A weakening dollar is good for the value of all raw materials, which are, after all, settled in dollars. And so it is also good for silver. The tendency of large companies to want to comply more and more with so-called ESG standards in the context of global greening will not harm the price of silver either. After all, green investments require a dose of silver.
A broad monetary policy, global greening of electrification, and declining supply. These are elements that contribute to the attractiveness of silver as an investment object. Silver is much more than just a safe refuge. In fact, it is not even a safe investment. But where, for example, shares of companies from the aforementioned sectors have sometimes risen to stratospheric heights, silver is only half of what it once was in its “golden year”, 2011. Or should we say ‘silver year’?