Main drivers for higher silver prices
Silver is a monetary metal and has been a part of human history since we started using money. In fact, there is no other currency that has been the world's main currency for as long as silver. Today, silver is in demand both by investors and the industry, as it is the most conductive metal for electricity and heat. With its unique properties, silver is increasingly used in our high-tech world, and this dual demand for silver is unique.
Today, industrial use accounts for 55% of total silver demand, driven by rising silver usage in the latest generation solar panels. When Elon Musk predicts that 90% of global energy will come from solar power, it is clear to see how dramatically silver demand could surge.
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Another key factor about silver is that there are no longer any stockpiles available for purchase. After several years of deficit in supply relative to demand, we are facing a situation that will have a major impact on the price of silver. A physical shortage could trigger a price surge, potentially doubling silver’s value in a short period. In addition, demand is inelastic, as we will not consume less silver regardless of price increases. This is due to silver’s irreplaceable properties and the fact that the amount of silver used per product is relatively small, meaning price surges rarely impact the final product's cost significantly.
As we wrote in our Gold Outlook, the US, led by Trump, wants to avoid a ‘bust’ at all costs to create a positive ‘boom’ sentiment. The price to be paid for continuing stimulating the economy is monetary inflation.
An inflationary boom creates an environment where commodity prices, including silver, surge. And it’s not just the U.S., global debt levels are reaching new record highs. The money supply in the system is growing rapidly without any substantial growth being created, resulting in each monetary unit losing value, driving up the price of monetary metals like silver.
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We also see an approaching end to the long-standing price manipulation that has occurred via trading on the COMEX exchange. Authorities have already issued billion-dollar fines, but have not put a complete stop to this behaviour, which has created artificially low prices, in particular for silver. However, the upside of this situation is that once they are forced to repurchase their ridiculous short positions, the price of silver will spike rapidly. Until that happens, there is a huge one-time discount to be seized.
Since we don't expect the authorities to solve this, we see this happening when either investors start buying in bulk or industrial users secure reserves ahead of a supply shortage to avoid production shutdowns. The ‘mother of all short squeezes’ then becomes a fact as those holding short positions will be forced to buy back at increasingly higher prices to avoid a financial catastrophe for their business.
Historically, you can tell whether silver is cheap or expensive by comparing the ratio between the prices of gold and silver. The Gold-Silver Ratio (GSR) usually reaches 30:1 when a bull market in precious metals begins to peak. So the ratio drops gradually during the bull market as silver has the tendency to outperform gold in long-term uptrends (and vice versa in a bear market).
Currently, the GSR stands at a high 90:1, making silver particularly attractive as an investment. Our short-term target for 2025 is for GSR to go towards 70:1, then gradually to 50:1, and then over several years, to 30:1. A GSR of 70:1, combined with a gold price of 3,000 – 3,300 USD, would give a silver price of 42 – 47 USD per troy ounce, which would be equivalent to an annual return of +45% and +62% respectively.
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