SILVER SUPPLY CLIFF DIVE –
Imminent Shortage to Propel Silver Prices Higher
The stars are all aligning for a breathtaking bull run in commodities in 2019. Trade war jitters, the border wall dispute, tension between the President and the Fed, a highly volatile Dow Jones and other markets, a sell-off in the same big tech companies that propped up the markets for years – all of this will make safe-haven assets highly attractive in the coming months.
Longtime commodities investors fondly recall the last time we saw a really big commodities bull market: it started in the early 2000s and lasted almost a decade. During this time, silver went from $4 to nearly $50, and some silver mining stocks went up much higher than that. It was a great time to hold silver, which enjoyed a tremendous bull run even while other markets were crashing:
As a commodity, silver has retained its value for a number of reasons, including its use in industrial applications: electronics, medicine, chemical catalysts, water purification, clothing, jewelry, currency, silverware… the list just keeps going.
It’s also needed for solar cells, an application that cannot be underestimated. A tremendous amount of solar power generation will be needed to supply electricity for America’s residential, commercial, and industrial sectors, as well as the demand for solar power to charge electric cars. In the U.S. alone, solar power generation is expected to increase six times by the year 2035:
Courtesy: Statista.com, SRSroccoReport.com
To get from 44 billion kilowatt hours in 2017 to 245 billion kilowatt hours by 2035 means a whole lot of solar power – and a whole lot of silver – will be needed. And there are other factors working in silver’s favor, like the 80-to-1 gold-to-silver ratio, which is entirely out of whack and due for some serious mean reversion.
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Silver is an absolute bargain compared to gold and pretty much every other asset class. When an ounce of gold costs 80 times as much as an ounce of silver – bearing in mind that the gold-to-silver ratio is typically closer to 50 – we can expect silver to make a terrific comeback as the cyclical nature of the markets brings everything back into balance.
The prospect of a severe “net deficit” (i.e., shortage) will also bolster silver prices in the coming months and years. Demand will certainly increase while silver inventories continue to decrease, with All-In Sustaining Costs (AISC) providing a likely floor as a widely accepted metric for the baseline cost of producing silver.
It just wouldn’t make sense for the price of an ounce of silver to stay below the cost to produce it, and with the All-In Sustaining Costs (AISC) for an ounce of silver being estimated at $16.10 in Q3 of 2018 – back when silver was $14 an ounce – we’ve witnessed the spot price move towards the per-ounce AISC and can reasonably expect the price of silver to exceed the AISC in short order.
And then there’s the ever-present threat of U.S. dollar devaluation and resulting inflation, which is practically inevitable after the dead-cat bounce we saw in 2018. Inflation is typically a catalyst for a run up in the price of silver, like we saw when inflation spiked in the 1970s and silver investors enjoyed big-time profits:
There are only approximately 307,500 tons left in underground silver reserves, and as President Johnson once said in 1965, “Silver is a scarce metal.” It was true then and it’s even truer today – and it’s one of a myriad of reasons to take a position in a precious resource that’s scarce, underpriced, and ready for a spectacular year.
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