Silver Prices Lag for Now, But Next Few Years Could Be Stellar
In the current commodity super-cycle, there’s one metal that has severely lagged behind the others: silver. While the prices of commodities like oil, wheat, gold, nickel, and copper remain strong, the price of silver has really underperformed. This might not remain the case for too long.
If you look at the long-term silver price chart, you’ll see that the price of the gray precious metal is well below the highs it made in 2011.
With all this, one might wonder if silver is even worth looking at anymore. If silver prices haven’t done much over the past few years, what are the chances of a move higher in the coming years?
Here’s what investors need to know: silver remains undervalued and extremely overlooked. Suppressed silver prices over an extended period of time will only make silver a better opportunity. Investors who are patient could reap immense rewards later. The next few years could be stellar for the price of silver.
Massive Disparity Ahead for Silver Market: Here’s Why
Digging in deeper…
It’s important for investors to look beyond the current silver price. The price you see at the moment is a reflection of what investors are thinking right now, mixed with noise and current market conditions. As an investor, you have to look at what’s ahead.
The silver market could have some massive imbalances in the years ahead. Silver-producing companies (there are very few of them) are facing significant challenges. Their production costs have soared.
Take a look at First Majestic Silver Corp. (NYSE:AG). In the first quarter of 2022, the company reported its all-in sustaining costs to produce a silver-equivalent ounce to be a little over $20.00. In the fourth quarter of 2021, these costs were $17.26. (Source: “First Majestic Reports First Quarter Financial Results and Quarterly Dividend Payment,” First Majestic Silver Corp., May 12, 2022.)
Mind you, this sort of thing prevails among major silver producers across the board. Fuel and energy costs have ballooned, and labor shortages have created some serious constraints.
One basic rule of economics is: when the price of a good is high, producers tend to produce more. When the price of a good goes down, producers tend to produce less (or none at all, if it’s not economically feasible to produce that good).
We could be getting very close to a point where silver companies have a hard time justifying production hikes when their expenses keep increasing.
Demand for Silver Remains Strong
The demand side of the silver market is robust.
Silver has an immense number of industrial uses. It’s used in solar technology, the pharmaceutical industry, electronic gadgets, computer chips, and so on. The world is moving toward electrification, and silver plays a very important role in that. Beyond its industrial-related demand, silver has high investment-related demand. The metal is sometimes referred to as poor man’s gold. Silver prices have a high correlation with gold prices; if gold moves higher, silver also moves higher.
Don’t just look at what’s been happening at silver exchange-traded funds (ETFs); look at the silver bullion sales at mints around the world. There’s currently a mini silver rush, to say the least.
The Case for Owning Silver Gets Stronger
Dear reader, just like gold, silver doesn’t get much attention in the mainstream media these days. Silver prices remaining flat also makes the metal unattractive to many investors.
Nevertheless, I continue to be bullish on silver. I wouldn’t be shocked if there was a massive silver shortage in the coming years as basic economics play out with the suppressed supply and increasing demand. If that happens, the mainstream pundits will be surprised, like how they were when oil prices shot higher because of years of under-investment in oil projects and, all of a sudden, the supply not being enough to meet the demand.
If silver prices had done well in the past few years, I wouldn’t be talking about shortages. There’d be money going toward new silver projects and exploration. In the current commodity super cycle, silver has lagged, and it could outperform other commodities in the years ahead.
As such, the downside in silver could be much smaller and the upside could be immense. Silver prices could double from where they currently stand and still be decently valued.
I also believe that silver miner stocks could be worth a look. Silver mining companies will benefit the most from a higher silver price, and their stock prices would likely reflect that.