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Hi Ho Silver!

Despite the stalling of the #silvershortsqueeze, is silver still set to soar?

The social media induced bump in silver prices fizzled almost as quickly as it began. The buzz around white metal surged after social media dubbed it the next short squeeze. The #silversqueeze meme started quickly trending on twitter and the story made it to the front-page headlines of major newspapers, such as the Wall Street Journal. The price shot 15% higher at the start of trading on Monday to a new eight year high before sliding back throughout the trading day Monday and Tuesday to nearly where it started the week.

Although, the first few days of the #silversqueeze campaign have somewhat deflated considerably, the lasting attention and residual retail investment demand for silver coins and silver bars will boost an already bullish silver price outlook. The widely trending campaign could also benefit silver by introducing Millennial and Generation Z investors, who possibly thought of gold and silver investing as old fashioned, to the markets.

Seven Reasons That Show it is Silver’s Time to Shine

Silver Has Reached A Turning Point Against Other Assets.

Two examples of this are against world equity markets, and US M2 Money supply. The charts below show that silver is climbing against the MSCI World Equity Index (broader equity market indices are highly correlated). It has also reached a turning point against US M2 money supply. As countries continue to debase their currencies through printing investors increasingly turn to gold and silver as a store of value which created this upward inflection point.

Comparing Silver to the MSCI World Equity Index
Comparing Silver to US M2 Money Supply

Low real-interest rates

Central banks are focused on economic recovery, and any excess consumer price inflation is likely to be chalked up as transitory due to the post-coronavirus recovery. The Federal Reserve has already stated this line of thinking and its own projections show real-interest rates increasingly negative through the forecast period. The Fed has adopted average inflation targeting, which means that since inflation has run below its target for many years that it will let inflation run above target for a period of time. This will push real-interest rates lower. The price has historically been negatively correlated with real-interest rates, meaning as real interest rates are pushed negative further the price of silver (and gold) will rise.

Central Banks Will Continue To Fund Government Debts

Central bank asset purchases are likely to continue through at least 2022 to soak up government debt from the massive fiscal deficits. This will end many of the social programs introduced as ‘temporary’ support programs will be unpopular among voters and will be extended adding extra expense to already strained government budgets. Central banks are likely to introduce yield curve control measures to keep longer dated government borrowing costs from rising. As Central banks purchase more assets, they further debase their currencies. This drives up demand for both gold and silver as monetary assets are not the liabilities of any central bank.

Industrial Demand Will Increase

The reopening of the economy and concentration on renewable energy will drive demand higher for solar panels, in the automotive industry and other industrial uses. “Solar PV is hugely important to future silver demand. A recent report from the World Bank forecasts that by 2050, consumption of silver in energy technologies could grow dramatically, reaching a level equivalent to more than 50% of current total silver demand; the largest proportion for any non-battery metal. More than 95% of this increase is due to an expansion of solar PV power generation” (silverinstitute.org).

Demand for Jewelry and Silverware will increase

The demand for consumer goods that are in-store purchases versus online will get a boost from retail outlets reopening, among these are jewelry and high-end household products. Households have been socking away extra savings during the pandemic, the US personal savings rate has risen by an aggregate of more than $1 trillion for example.

Use for sanitizing and medical purposes

The coronavirus pandemic has increased research into silver use for sanitizing and medical purposes. It is already used in dressing wounds and has been for decades. Plus, it’s toxic to bacteria, fungi virus and algae through the action of its positive ions interfering with their cellular membranes. Bacteria killed by silver do not destroy or consume the silver mass which means the same silver mass remains available to kill subsequent bacteria (or virus or fungus). This is a permanent mechanism versus an alcohol-based sanitizer which stop working once evaporation occurs. Although dosages are measured in milligrams, the coronavirus pandemic response efforts could accelerate research into new meaningful uses of silver tonnage. Also, the “global silver nanowires market has witnessed considerable traction over the years. This is due to the demand for the product from the vast healthcare sector, on account of its anti-microbial properties. These characteristics may be attributed to its strong optical transmittance and conductivity. This will magnify the use of the product in medical applications such as imaging.” (worldofchemicals.com).

Reduction in Mine Supply

The Silver Institute forecasted mine supply to decline 6.3% in 2020 from 2019. This is due to forced temporary closures due to coronavirus lock-downs in many countries. The ongoing coronavirus-induced lock-down restrictions are likely to also limit mine supply in 2021.

Conclusion

The social media buzz has shone a light on the silver market that may shine brightly for years to come. More and more people are becoming aware of the alternate uses the metal has beyond monetary as it grows in technological and medical applications. A new and wider audience is slowly becoming aware of what many long term silver investors have known all along – the true potential of silver!


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