22 Mar Silver Price To Explode
Just a little more than a year ago, the world got hit by a freight train called Covid-19. No one expected this and no one was prepared for something like this. Back then a 100 g gold bar was selling for R91,311.00 ( R101,500.00 today ) and a one kilo silver bar was selling for R12,229.00 ( R17,663.00 today ). The gold/silver ratio was 88. That means for every ounce of gold you could buy 88 ounces of silver. This ratio actually went up to 115 in April 2020. At the time I wrote an article saying this was the absolute best time to buy silver. The gold/silver ratio today is 66 and is expected to go even lower. The meaning of this is that if you bought gold and silver in April 2020, your silver would have outperformed the gold by a huge margin. Gold went up 24% while silver went up 50%. All that however, does not make any difference to where we are right now. What does matter, is that I am of the opinion that the silver price is about to explode.
The silver supply graph to the left clearly shows the yield decline from the major silver mines from 9.4 million tons of ore and yielding 123 Moz (2005) to 20.2 million tons yielding only 118 Moz (2020) of silver. As if this is not bad enough, even worse is that there has been zero capital expenditure from the silver mining industry for developing new silver mines because of the low silver price for the last 10 years. The supply side for silver is looking very precarious. More detailed silver supply information can be seen on this link from The Silver Institute
Looking at the demand side for silver we can see from the graphs to the left that the etf (exchange traded funds) demand is soaring sky high. As you well know, money flowing into etf’s require the buying of physical silver to balance the books. Traditionally, the biggest demand for silver is from industrial, medical and electronic uses. The biggest reason for an explosion in the silver price is exactly here on the demand side. I will explain fully later on in this article.
The big game changer can be seen by the graph to the left, A major shift in the demand equation for silver is taking place right now. Instead of the traditional use for silver, industrial, medical and electrical, the biggest demand now is investment as shown by the 2020F blue line on the graph. This has never happened before and earmarks a new way we as analysts have to look at silver. Investors should also sit up and take notice as the previous target for silver of $42 odd at the end of the year, must now be rewritten. I frankly have no idea where the silver price could go to but it will be high, very high!
The Comex silver inventories on the left show a very peculiar picture. The inventories are actually dropping while silver prices are rising. This is very strange as the inventories should be going up. The following article gives us some insight into this phenomenon. My personal opinion however, is that investors are actually withdrawing the physical silver and taking it home or some other safe place outside of the normal systems.
In conclusion we must remember that the real flow of money to the precious metals will only begin once the stock market casino starts to crumble. If you do not already have your physical gold and silver, you will find it very difficult to get in as prices will rise very rapidly. Supply will dry up and you will not be able to buy gold or especially silver even if you have all the money in the world. Countries like Scotland, the UK and most big bullion dealers in the US are already short of silver. I am not even mentioning India, which was traditionally the biggest importer of silver in the world. The Indian government recently hiked import taxes on silver which squashed demand but as silver prices rice, India will start buying again.
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