Interest in silver investment has increased significantly in recent months. According to a report commissioned by the Silver Institute and put together by Metals Focus, silver investment has increased across a range of available instruments including physical metal, exchange-traded products (ETP) and in the futures markets.
Increased market volatility, a return to easy-money policies by central banks, geopolitical uncertainty and deteriorating economic conditions have spurred investment in safe-haven assets including silver. The silver price began the year at $15.44 per ounce. As of the end of September, the white metal was up 11%. Silver posted a yearly high of $19.30 on Sept. 4, a level not seen since 2016.
Physical demand for silver rose by 30% year-on-year through the first half of 2019. According to the report, physical investment in silver bars and coins is expected to account for 19% of global silver demand. Although this seems modest compared to the 29% share it achieved in 2015, analysts expect physical investment’s contribution to total demand to edge higher in the coming years, even though overall global silver demand is also forecast to grow.
Improved investor sentiment toward silver has translated into significant gains in ETP holdings. In terms of volume, sliver ETPs charted new highs this year, reaching 736.9 million ounces (22,920 tons) on Aug. 16.
In the futures market, net long positioning on Comex at end-July rose to its highest level since November 2017.
The Silver Institute report provides in-depth analysis of each of these investment areas, as well as the silver mining sector.
Even with the price increase this year, silver is still a bargain.
The white metal’s big move up in recent months is a good sign for both the silver and gold markets. Silver began to play catch-up with gold in mid-July. After pushing close to 93-1, the silver-gold ratio began to close as silver rallied. At the time, Peter Schiff said this also indicates to him that the bull market in gold is about to kick into a higher gear.
The silver-gold ratio currently stands just above 85-1. While this is a healthy improvement from the 93-1 levels we were seeing earlier this year, it is still a significant spread. Keep in mind, the modern average over the last century is around 40:1. As recently as 2011, the ratio was 30.5-1. This tells us that silver remains significantly undervalued compared to gold. In effect, we still have silver on sale. If you look at how cheap silver is compared to gold, the upside has probably never been this great. Given the supply and demand dynamics, along with the prospects of a weakening dollar when the recession hits, it seems likely that gap will close.
Silver has hit an all-time high of $49 per ounce twice – in January 1980 and then again in April 2011. If you adjust that $49 high for inflation, you’re looking at a price of around $150 per ounce. In other words, silver has a long way to run up. As one analyst put it, “With the long-term downside potential of silver very low versus its current valuation, the risk/reward is one of the best investments on the planet.”
Supply and demand dynamics also look good for silver. Demand for silver was up last year and supply fell for the third straight year. And it appears silver mine production is continuing to fall. As we reported in August, mine output fell significantly in three of the world’s top silver-producing countries through the first half of the year.
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