EDITOR: | August 3rd, 2016 | 1 Comment

Some upside expected for silver

| August 03, 2016 | 1 Comment
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Attention is drawn to the silver market where the white metal has continued its meteoric rise to recently reach the $20/oz mark for the first time since mid to late-2014.  Among the precious metals, silver is less renowned than gold in terms of being an investor haven asset during times of uncertainty. However, silver has some tricks up its sleeve in the form of being an industrially useful commodity as well, which serves to benefit it when investors feel global economic data is improving.

The gold/silver ratio, a measure of how many ounces of silver are needed to buy one ounce of gold, is now sitting around 68 after recently touching levels closer to 84. This marked the ratio’s highest level (84) since the 2007-2008 global financial crisis and given that the ratio can serve as an indicator to determine when to buy or sell the precious metals, it can either indicate that gold is overpriced or silver is underpriced.

Goldsilver ratio

Graph showing price of silver poised for rebound

It is perhaps less likely that gold is overpriced in the current set of market conditions and characteristics and therefore it stands to reason that silver could experience further upside gains in the coming months. This would potentially be from both a safe haven asset perspective in keeping with the traditions of its more senior partner gold, as well as the global growth picture perhaps improving given how accommodative the major central banks are becoming.

Silver’s industrial use in terms of photovoltaic installation stands to serve the white metal extremely well in the coming months and years. Solar cells are the building blocks of photovoltaic modules, otherwise known as solar panels.

PV capacity installation has seen phenomenal growth these past few years which is expected to continue to benefit the silver market

PV capacity installation has seen phenomenal growth these past few years which is expected to continue to benefit the silver market

To further shed light on this notion, the Silver Institute’s World Silver Survey for 2016 showed that metal demand for photovoltaic installation rose 26% in 2015. With the global push towards environmentally friendly forms of energy, solar demand could continue to increase in the coming months and years, which may benefit silver prices as a result.

Silver is also competing well against various chemicals and materials in antimicrobial applications, while also carving out some market share in electronics and jewellery. There are many industries in the infancy stage where silver use could become applicable and these include amongst some the “Internet of Things” and OLED lighting.

According to Gartner, a technology consultancy, the number of connected things is expected to increase sharply by 2020. In addition to this, IDTechEx, a market research firm forecasts that the OLED lighting market is forecast to reach $1.9 billion by 2025, from somewhere under $200 million at present. Whether the demand for “Internet of Things” industry and OLED takes off in the near term though is unknown.

So it comes to the point where it appears that silver is in a good space at the moment but whether it will reach the March 2011 highs closer to $47/oz in the coming months is not yet known.


Lara Smith

Editor:

The Founder and Managing Director of Core Consultants in June 2009, Lara and her team are committed to supplying high quality commodity market research, analysis ... <Read more about Lara Smith>


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Comments

  • Jeff Thompson

    Thank you for the analysis, Lara. No doubt silver will see additional thrifting efforts to reduce the per unit content in solar panels, similar to the dysprosium thrifting/elimination that has occurred in permanent magnets, but even with per-unit reductions, the raw number of solar panels is set to increase dramatically in the coming 5 years (regardless of one’s views about whether that is economically justified or not – politics and sentiment nearly always trump science/economics in the intermediate-term, while science/economics always win in the long-term), and in general, total demand growth for silver looks good given the wide variety of applications that exist for it. Every time it gets designed out of one application, us engineers design it back in somewhere else. Given it’s conductive and thermal properties, that cycle will always continue. And industrial applications are perhaps secondary to it’s precious metal/bullion value, and the supporting role it plays to gold, for those looking to guard against currency debasement, which looks set to continue globally for the foreseeable future in a “race to the bottom”. When people print money, it’s called counterfeiting. When government’s do it, it’s called a “stimulus package”.

    While I would love to see silver hit those old highs again, I think a more realistic target is $25/ounce in the next 6-9 months. Small primary silver miners will continue to do well, although not those large base metal miners who produce the majority of world’s silver as a byproduct of their much larger base metal operations.

    August 3, 2016 - 11:41 AM

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