Historically, silver has been extremely sensitive to market changes. Considering the white metal is reactive to both economic and industrial data, silver investments can feel like a ride on an F-15 when compared to the slow and steady ride of its gold counterpart.
According to Saxo Bank, there are a number of pressures on silver demand that will send the white metal soaring to a record high of $50/ounce in 2021.
Saxo acknowledges, that the “usual suspects” that drive silver prices are still in play, referring to the unprecedented monetary polices assumed by the Fed since the onslaught of the Pandemic.
Even with the promise of a successful vaccine, the economic damage that has occurred both before and as a result of the pandemic will continue to erode the US dollar and create massive inflation. In August, the Fed chairman, Powell changed Fed policies to allow inflation to run hot. The decision was made to allow inflation above the 2% target that had previously been tolerated. Their goal was to “offer maximum support for still recovering economies.”
In response to the Fed, financial commentator Peter Schiff noted that the Fed has injected so much stimulus into the economy in the past, that they have no recourse to fight the inflation they have created. This is the primary reason the Fed has moved the inflation goal posts; they have no choice. Inflation is the natural outcome of unfettered economic stimulus.
A weakened dollar and inflated prices are highly bullish for precious metals.
Further bolstering silver prices, the white metal has an advantage over its gold counterpart in its usefulness to clean energy projects. With a Biden presidency on the horizon, the push for green energy will be monumental. According to the Silver Institute, Solar power generation is projected to double by 2025.
Silver is an essential component in photovoltaic cells (PVs) in solar panel production. In fact, there is no other metal that can compete with silver in terms of energy output per solar panel. Not only are silver PVs more efficient, non-silver PVs have a shorter life span and are less reliable than silver PVs.
Saxo bank projects that with this increasing demand for green energy and silver’s vital contribution, that demand will quickly outstrip supply in the near future.
Taking a hard look at silver supplies, silver mining was hit hard by the pandemic with production falling by roughly 6.3%. A considerable amount of this drop in production is due to mine closures related to the pandemic, however silver production was already on the decline long before COVID-19. Global silver production dropped by 1.3% in 2019 alone. I can speak first hand at the coin shortage. Things are surely getting interesting to say the least.
Historically, silver has tracked alongside of gold as a monetary metal but has been significantly undervalued at 75-to-1. With the current monetary policies supported by the fed and a weakening US dollar, we are likely to see silver prices soar due to both industrial and monetary pressures.
If there has ever been a time to get in on silver investments (wealth insurance), it is now. Not only does silver offer wealth insurance and protection like its gold counterpart, which is essential in these uncertain times, this next year will be extremely bullish for silver in the industrial sector as well.