On January 9th, we suggested readers take advantage of what appeared to be a stealth bull market in gold. Since then, gold pushed over 21% higher before pulling back recently, as you can see below.
Many investors didn’t get in before gold began its climb. So, this current pullback is providing a good entry point before the precious metal resumes its push higher.
As we’ve discussed here in the Digest, there’s a strong case to be made for major long-term gains from gold … though we expect bouts of volatility along the way, such as the pullback we’re currently experiencing.
But gold isn’t the only precious metal that’s been making a move in recent months …
As you can see below, starting in early June, silver shot up close to 35% — doubling gold’s 17% gain during that same period. Of course, this cuts both ways. The recent pullback in precious metals is dragging down silver’s price more so than that of gold, as you can see below.
But when we look at the big picture, we believe more gains are coming for silver.
Eric’s experience with macro trends has helped him call nearly every significant market move of the past 25 years … and he’s made more stock recommendations that resulted in 1,000%+ gains than anyone we know in the financial newsletter industry.
Right now, Eric has silver in his crosshairs. But it might not be for reasons you’d suspect …
You see, demand for silver is now intersecting with another investment opportunity that Eric is wildly bullish on — solar power.
As Eric notes in his essay below, the solar power industry, which used almost no silver 10 years ago, now consumes 13% of the world’s mined silver supplies.
It’s yet another reason why silver’s future looks bright.
On that note, I just talked with Eric, and he made the point that despite its recent run-up, silver is still $32 BELOW its 10-year high.
So, in today’s Digest, we’re going to feature a recent article from Eric that touches on both silver and solar, and the potential for huge gains from each.
By the way, Eric’s new issue of Fry’s Investment Report comes out today. In it, Eric discusses both silver and solar, among other topics. There’s also a new precious metals recommendation. The issue is a great follow-up to the featured essay below. To learn more, click here.
I’ll turn it over to Eric now. Enjoy.
Jeff Remsburg
This “Boom-Bust Metal” Is Poised to Boom
Let’s play a little game of Family Feud.
As the virtual Richard Dawson (or Steve Harvey, if you’re younger), I pose the following survey question: “Name something that can contain silver.”
Take as much time as you need …
What was your answer? Was it “jewelry” or “dollars” or “spoons”? Or did you maybe think about something a little further afield like “bullets” or “anniversaries” or “cloud linings”?
Or maybe something even further afield … like “photovoltaic cells”?
If you actually had answered “photovoltaic cells,” you probably would have lost Family Feud, but you would have won the “Best Segue of the Day Award” from InvestorPlace Digest.
The connection between silver and photovoltaic cells (solar power) is still small, but it is growing rapidly.
The solar power industry, which used almost no silver 10 years ago, now consumes 13% of the world’s mined silver supplies.
Solar panel manufacturers add silver powder to a paste that they apply to a silicon wafer. When light strikes the silicon, electrons are released and silver conducts the electric current.
In 2017, the solar industry’s demand for silver soared 19% from the prior year. It retreated slightly last year, but that source of demand is on track to hit new records this year.
Importantly, solar is not the only industry that’s ramping up its silver consumption. So is the electric vehicle industry.
Last year, the auto industry consumed about 57 million ounces — equivalent to more than 6% of annual mined supply.
“But this [total] is set for dramatic expansion,” the industry researchers at Gold Fields Mineral Services (GFMS) predict. “All-electric vehicles and particularly hybrid vehicles are poised to deliver substantial increases in offtake.”
As a result, GFMS expects the global auto industry’s silver use to triple by 2040.
While these new sources of demand are steadily increasing, new sources of supply are gradually decreasing. According to the Silver Institute, mined supplies of silver peaked in 2015 and are on a downward trajectory.
Already, the annual supply of newly mined silver is inadequate to satisfy industrial demand. But aboveground stockpiles have filled the deficit. These hard-to-quantify stockpiles may continue filling the deficit for years to come, but not necessarily at $17 an ounce.
As mined supplies drop and industrial demand climbs, silver may become increasingly precious … and expensive.
This favorable supply-demand outlook does not automatically mean silver is a “Buy,” but it does suggest that silver is less of a “Sell,” especially now that its price is trading near its lowest levels of the last 10 years.
Remember, silver’s bear market following its 2011 high was its second-worst on record. The silver price plummeted 74% from its high near $50 an ounce in April 2011 to the bear-market low near $14 in late 2015.
The silver price has inched a bit higher since then, but it still sits more than 65% below its 2011 high. Adding insult to injury, the S&P 500 soared 155% over this same time frame.
If these percentages sound like just a bunch of numbers, consider this hypothetical scenario.
If you had invested $10,000 in silver in April 2011 while your next-door neighbor invested $10,000 in an S&P 500 Index fund, you would now have $3,400 and your neighbor would have $25,500 — or seven times more!
Results like these are one powerful reason why silver has become a very unpopular asset.
But according to classic contrarian investment principles, the greatest buying opportunities present themselves whenever a particular asset falls out of favor. Silver qualifies as an “out of favor” asset.
To conclude, let’s indulge in a little game of “What If?”
What if a new bull market in silver is already underway? What if the low near $14 an ounce was the low of the silver bear market?
How high might the silver price rise during the upcoming bull market?
Two different gold-silver ratios provide some insight. First, the historical gold-silver price ratio shows silver to be near its lowest relative level of the last five decades.
If silver simply rose to its 45-year midline valuation, relative to gold, it would be trading at $27.40 — a 51% gain. That’s assuming no gain in gold whatsoever. However, if gold traded back to its record high, and silver traded back to its average ratio, silver would soar to about $35 — nearly double its current price.
But there’s another gold-silver ratio … and it suggests an even higher price target for silver. That’s the geological gold-silver ratio.
Geologically speaking, gold is only 18 times rarer than silver. Yet the gold price is 88 times higher than the silver price. So, if we were to adjust for geological rarity, silver would be trading at $83 today — or almost five times its current price.
Of course, that’s not how markets work.
Sometimes the truly rare item languishes at low prices and attracts little investor demand, while the utterly limitless item — think Beanie Babies, tulip bulbs, and money-losing dot-com stocks — attracts rabid investor demand that drives prices sky-high.
These are the extremes of investor sentiment that create opportunities — either to buy low or sell high.
The silver price is low. Buy it.
I’m showing my subscribers how to buy silver — and other precious metals — at Fry’s Investment Report.
In fact, I recently released a special “all gold” edition of my monthly newsletter.
In it, I investigate the story behind gold’s recent rally — and whether that rally has legs.
