Summary

  • Silver in percentage terms will outperform gold in this precious metal bull market.
  • Investors are in an acquisitive mood as the demand for physical silver takes off.
  • Demand via the silver-backed exchange-traded products (ETPs) has just about tripled in the first nine months of this year.
  • Avoid the day to day and even the week to week oscillations in the silver market as this is no more than a distraction from the emerging bull market in the precious metals space.

Introduction

We have long held the view that silver in percentage terms will outperform gold in this precious metals bull market. On the 10th October 2020, The Silver Institute provided an interesting insight into the current demand for silver via silver-backed exchange-traded products (ETPs). Today, we will take a quick look at the data and try to ascertain where next for silver prices.

Increase in demand for silver via the ETPs

The chart below clearly shows that investors are in an acquisitive mood as the demand for these products has just about tripled in the first nine months of this year when compared to the same period last year and now stands at 297 million ounces. It is debatable as to whether silver is being accumulated in this manner as a poor man’s safe haven purchase or as a speculative trade on the assertion that silver will outperform gold. Either way it does suggest that there is strong support for physical silver, and should this trend continue, then one would expect to see higher prices for silver and a possible new all-time high in the near future.

Source: Bloomberg, respective ETP issuers

The 12-Month Chart for Silver

This chart below depicts silver’s rise from the $17.00/Oz a year ago to an overbought position of close to $30.00/Oz in August 2020. Since then, silver has corrected to a more neutral position of around $24.00/oz. The technical indicators of the RSI, STO and the MACD have now unwound from their lofty positions which suggests to me that there is room for silver to resume its trek north.

Chart courtesy of Stock Charts, TA by Author

The Gold/Silver Ratio chart

The ratio below depicts how gold and silver were out of step when it reached a high of 130:1; however, the renewed interest in silver this year has seen the gap close to around 80:1. Our initial target is 60:1, and so with gold currently trading at $1,906.00/Oz, this indicates that silver needs to trade at $31.70 before our target is met.

Some of our peers are of the mind that this ratio could get down to 15:1, which, if it is achieved, would put silver at $127.00/Oz. This ratio is not an impossibility and it is something I intend to review once our initial target is achieved.

Chart courtesy of Stock Charts, TA by Author

Also, of note regarding physical silver is that the price of around $24.00/Oz is the current ‘paper’ price, whereas when one tries to purchase single one-ounce bars or coins, the price being asked is around $40.00/oz.


Should you be in an extravagant mood, the US Mint has increased their price for an ounce of silver to $67.00/Oz. This tells us that we should shop around in order to get a good deal and maybe not wait too long before doing so.

Conclusion

Try to avoid the day to day and even the week to week oscillations in the silver market as this is no more than a distraction from the emerging bull market in the precious metals space.

Concentrate on the big picture, the impending recession and the non-stop printing of money for these are two of the main drivers behind the realization that hard assets are the place to be.

Prosperity is blood, sweat and tears and the ‘money from thin air story’ will end in sorry for many of us.

If this is a new sector of the market for you, then read as widely as possible in order to gain a broad but thorough understanding of why you need to own some silver and some gold if your budget will stretch that far.

The precious metals mining companies can provide leverage by as much as 3 and 4 times the percentage gain of the underlying metal, so give them some thought.

If you are an experienced options trader, then this will be a white knuckle for those involved so expect to cry as well as laugh on some occasions.

I am long physical gold and silver and do own a selection of producers in the precious metals sector.

For the record, I am long physical gold and silver and own around 18 stocks in this sector, including Wheaton Precious Metals Corp. (NYSE:WPM), SSR Mining Inc. (SSRM), Kirkland Lake Gold Ltd. (KL) and Sandstorm Gold Ltd. (SAND).

As I own these stocks, I am biased towards them, so do your own due diligence in order to raise your own level of confidence in whatever you acquire.

Author: Bob Kirtley

Source: Seeking Alpha: Silver Investment Demand Will Power Silver To A New All-Time High

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