Silver Riding High in Precious Metals Market

For the first time in more than 10 years, the price of silver exceeded $30 an ounce last week. The last time the metal’s price went past $30 was in 2011, when it almost hit $50. Compared to gold in percentage terms, silver seems to have performed better, despite gold’s strong bull run.

Since February, the price of silver gained 44.6% while that of gold went up by some 21%. Mike Maharrey, a market analyst, explained that silver often performs better than gold in bull markets mainly because of industrial demand and higher volatility. He added that in a bull market, investors needed to be bullish on gold as well as silver.

The price of silver is also influenced by its use in multiple industries, which makes up more than 50% of yearly demand. This demand is expected to increase as the metal’s use in green-energy applications grows. Projections show that by 2027, manufacturers of solar panels may need more than 20% of the current supply of silver in a year. By 2050, these manufacturers may need more than 80% of global reserves.

Historically, silver has been used in transactions because of its lower value by weight in comparison to gold. This quality also makes it suitable for daily transactions while gold’s higher value by weight makes it ideal for use as a store of wealth.

The gold-silver ratio, which is used to compare the prices of the two metals, shows that historically, silver has been underpriced. Currently, the ratio stands at 78:1, which is significantly higher than its two-decade average of 68:1. The current ratio suggests that silver can make this gap even smaller.

Maharrey also discussed the historical significance of this ratio, noting that in the modern age, its average stood between 40:1 and 60:1. In addition to this, he talked about how the ratio could indicate investment opportunities. Maharrey went on to point out how when the ratio rose higher than its average, it rebounded to the mean strongly. For example, the gold-silver ratio rose to 123:1 at the peak of the pandemic then dropped to almost 60:1 as central banks globally tried to mint more cash.

Regarding demand and supply, the demand for silver surpassed supply again in 2023, making last year its third consecutive year to do so. Despite this, the metal’s total demand reduced by 7% to reach 1.2 billion ounces with mine output also dropping by 1% to reach about 843 million ounces. This caused a considerable structural deficit of more than 184 million ounces.

Even with this, silver’s strong demand and supply dynamics, increasing industrial use as well as the fact that it may be undervalued continue to make it a plausible investment opportunity as well as a good option to help diversify one’s investment portfolio.

As the price of silver continues its expected climb upwards, stocks of mining companies such as Hecla Mining Company (NYSE: HL) could attract more investor interest.

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