Silver Sets the Pace for Precious Metals

Silver Sets the Pace for Precious Metals by McAlinden Research Partners for The Au Report

Summary: The rally in silver prices has accelerated this summer, pushing spot prices to a six-year high this week. While the debasement of the dollar by huge fiscal and monetary stimulus has played a role in the broader outperformance of precious metals, silver has benefited from a rebound in industrial activity, as well as historically low relative pricing when compared to gold. [Related exchange-traded funds (ETFs): iShares Silver Trust (SLV), Global X Silver Miners ETF (SIL).]

The precious metals have had quite a run over the last few months, and silver has been at the top of the heap.

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Spot prices have now pushed above $21/oz, the highest level in six years, according to analysts at Commerzbank. This new high is in stark contrast to the 11-year low silver hit back in March.

Industrial Growth Powered by Solar Boom

Silver has great appeal in times of economic recovery because it is not only a safe haven asset, but an industrial metal as well, sporting applications in everything from electronics to solar panels. The reopening of Chinese factories in recent weeks and a rally in base metals such as copper also is supporting demand.

Investors have picked silver as a way to play this “green” recovery, Colin Hamilton, analyst at BMO Capital Markets, told the Financial Times. Governments across the world have approved more than $50 billion of environmentally friendly stimulus measures this year, according to BMO.

Earlier this year, the Silver Institute released a report, produced on its behalf by CRU Consulting, estimating that demand for silver in photovoltaic (PV) cells, used for solar power, will be a cumulative 888 million ounces between this year and 2030. BMO is even more bullish on silver’s utility to the solar industry, projecting around 1.5 billion ounces of PV demand from 2020 through 2030.

Technicals and Fundamentals

It also helps that, until recently, silver was likely the cheapest it has ever been, in relation to gold.

While the wave of volatility and the resulting liquidity crunch brought on by the height of the Covid-19 pandemic wiped out precious metals prices at the time, it only strengthened the long-term case for precious metals—particularly silver.

Back in March, we wrote that silver was the most attractive play in precious metals, trailing the price of gold by more than it ever had before. Back then, the gold-to-silver ratio was so extended that it had just broken a 5,000-year-old record, peaking around 125. This ultimately set the stage for the dramatic rebound in silver prices that we are now seeing.

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