This week, precious metals dealer SchiffGold released a report which predicted that there is a significant upside to silver, which is a bargain at current prices, even as it has taken part in the recent rally in gold.
As of Friday, silver was trading at more than $23 dollars per ounce, leaving the price 11% higher in November than in the previous month. Gold was trading at roughly $2,020 per ounce.
The report noted that viewed in light of its historical relationship with gold, and given the dynamics of supply and demand, silver appears substantially underpriced.
The report noted that the silver-gold ratio is currently above 81-1, meaning that it takes over 81 ounces of silver to purchase a single ounce of gold. In 2011, the ratio declined to 30-1, and in 1979, it declined to under 20-1.
SchiffGold wrote, “When the spread gets this wide, silver doesn’t just outperform gold, it goes on a massive run in a short time. Since January 2000, this has happened four times.”
The dealer went on to note that although silver is not as important as a monetary metal, its ratio compared to gold has been gradually widening. It went on to say, “During periods of central bank money-printing, the gap tends to shrink. For instance, it plummeted in the aftermath of the 2008 financial crisis as the Fed engaged in extreme monetary policy.”
Silver is used industrially in many areas, such as the manufacturing of everything from automobiles, to solar panels, to jewelry and electronics. As 5G technologies are becoming more prolific, and there is a global push toward green energy, it is projected the demand for silver will accelerate, which will exacerbate the present supply deficit.
SchiffGold cited a recent report by Oxford Economics, which pointed out that the demand for silver in industrial applications, as well as for jewelry and silverware production is predicted to be poised to almost double over the next decade.
As a result, many analysts think that the current supply-demand dynamics are not reflected in the present price of the metal, nor are future demand, or the rapidly increasing supply deficit.
Last year there was a 237.7 million ounce market deficit produced by a record global demand for silver combined with a deficit in the supply on the market. That marked the second year in a row of a market deficit, which the Silver Institute referred to as, “possibly the most significant… on record.”
SchiffGold concluded, “At some point, investors will have to reckon with the shrinking supply of silver coupled with rising demand, along with the Fed’s inability to bring inflation back to its 2% target. When that happens, the price of silver will likely take off. If it does, $25 silver will look like a real bargain.”
