Soaring Demand Could Send Price of Silver Higher
There’s a perfect storm brewing in the silver market. Those who own the gray precious metal could reap immense rewards. Don’t be shocked if we end up looking back at today’s silver prices of about $23.50 per ounce and saying, “Wow, that was cheap.” There’s a good chance the price of silver will make a run toward $50.00 per ounce in the coming years.
The fundamentals of the silver market keep getting better, but this story remains extremely underreported. That means there’s still time to get on board, since the masses haven’t gotten involved just yet.
The demand for silver has been skyrocketing, which could cause silver prices to rise.
The U.S. Geological Survey (USGS) estimates that, in 2022, global silver consumption jumped to a record 38,000 tons, up by 16% year-over-year. (Source: “Silver,” U.S. Geological Survey, last accessed March 29, 2023.)
The consumption of silver coins and bars increased by 18% in 2022, its sixth consecutive increase. The demand for physical silver in India doubled in 2022 compared to 2021. The consumption of silver jewelry and silverware soared by 29% and 72%, respectively!
While many people might think of silver as a precious metal, it’s more than that. Silver is also an essential metal. There’s a massive industrial demand for silver, and that demand has been increasing. Silver is one of the most robust industrial metals, and there isn’t really any replacement for it.
The USGS estimates that, in 2022, the usage of silver in industrial activities increased by five percent compared to a year earlier. Where was the silver used? Three industrial sectors that bolstered silver demand were 5G telecommunications infrastructure, light-duty vehicles, and photovoltaic (solar) technology.
What’s Ahead For Silver Demand?
It’s hard to imagine the demand for silver cooling down anytime soon.
For one thing, there’s an abundance of economic uncertainty around the globe.
Major countries have been struggling to fight inflation, and their economic growth rates have been tumbling. Moreover, investors have been trying to figure out what will happen to interest rates now that they have skyrocketed. Plus, there have been a few bank failures recently. Investors are asking if those bank failures will eventually lead to a financial crisis.
At times like this, investors could seek refuge in silver.
As for the industrial demand for silver, the world is going through electrification, and silver plays an important role in that. So, in the coming years, the industrial demand for silver could increase by a lot more, leading silver prices to keep going up.
All this makes the case for owning silver even stronger.
This Key Ratio Says Silver Is Currently Undervalued
While the demand side for silver is looking great, there’s one key ratio that shouldn’t be ignored, the gold-to-silver ratio. Against the backdrop of improving fundamentals, this ratio says silver prices are extremely undervalued at the moment.
The gold-to-silver ratio indicates how many ounces of silver it takes to buy one ounce of gold. This ratio is widely used by precious metal investors as a way to determine silver price valuations.
Whenever the gold-to-silver ratio goes above 80, it means silver is getting into undervalued territory. Whenever the ratio goes below 40, it means silver prices are overvalued.
Please look at the chart below, which plots the gold-to-silver ratio over the past 35 years. Note that, whenever the gold-to-silver ratio rose above 80, it almost always eventually went back down to about 40. This has been the case for at least the past three decades.
Chart courtesy of StockCharts.com
Currently, the gold-to-silver ratio is above 80, which suggests that silver is undervalued. If this ratio drops to 40 and gold prices remain the same as they are now, around $1,950 per ounce, silver prices would have to jump to $48.75 per ounce. That’s about 107% above the current silver price!
Silver Price Outlook: It Could Outperform Gold
Dear reader, I can’t help but be bullish on silver prices. It’s one of those plays in which the downside might not be a lot, but the upside could be colossal.
Silver’s fundamentals have been getting better, and it’s just a matter of time before the metal’s price catches up. In the coming years, silver could outperform gold by a large margin (when it comes to the percentage change of the two metals’ prices).
For investors, there are several ways to profit from an increase in silver prices. Here are three of them:
- Silver bullion: This is the simplest way to invest in silver, but there are storage costs and other expenses to consider
- Silver-backed exchange-traded funds (ETFs): They provide investors with exposure to silver
- Silver mining company shares: This is the riskiest option, but it could provide leveraged gains (it’s not uncommon for silver stocks to outperform silver prices)