Steady Silver Price Could Be Prelude To Big Move Up

Photo: Steady Silver Price Could Be Prelude To Big Move Up

There has been some disappointment in the silver market over the last year. But given the fundamental picture for silver demand, it may just be a matter of time before the price rises significantly. What many people overlook is that getting attached to daily, or even monthly price fluctuation isn't really a sound way to invest over the long term.

When looking at silver's price since it made its most recent high in 2011, it is important to bear in mind where the rally started from around the year 2000. From a base of about $5 USD an ounce silver has returned over 300% in the last 20 or so years, which isn't too shabby given the ease of buying and owning the white metal.

Many people have been hoping for bigger returns, and while they have yet to materialize, silver's volatility could create some big moves over the coming years. Many successful resource professionals have been turning bullish silver of late, and recently Rick Rule discussed why it is important to have realistic expectations when investing, and why silver may be looking at big gains over the coming years.

Lopsided Ratio

The silver to gold ratio describes the price of silver vs. gold when compared to eachother in even quantities. The naturally occurring ratio is around 15:1, meaning for every 15 ounces of silver found, there is about 1 ounce of gold. But today, that ratio is much more extreme. Over the last few years the silver to gold ratio has been around 60:1, but at the time of writing it is 75.58.

This means that even by recent standards silver is cheap to gold, and when we look at the ability for miners to produce silver, it looks extremely inexpensive when compared to gold. Part of the reason that silver is so volatile is that the market for silver is very small when measured by its dollar value. The Silver Institute estimates that just 886 million ounces of silver were produced in 2016, which would mark the first decline since 2002.

The primary supply of silver mined last year is worth about 14.5 Billion US Dollars at today's prices, so it is easy to see how money entering the market could make some big moves happen. It is also worth considering that most of the silver mined comes from other industrial metals, like copper, nickel and zinc. This means that silver's price could rise without triggering a response from producers.

A Bright Future

Silver is one of the only industrial metals that doesn't have a large amount of primary supply. The Silver Institute also reported that the demand for silver from the solar industry rose by more than 30% in 2016, and given the amount of solar power infrastructure China is building, that trend will only grow. As it stand today, silver is an indispensable part of a solar panel, and comprises at least 15% of a panel's total cost.

If you are interested in learning more about how the precious metals market works, The Silver and Gold Summit is a great place to learn more. Dr. Peter Megaw from MAG silver will be there, as well as a number of other influential CEO's and investors. The Summit will be on November 20th and 21st, and there is still time to make plans to come to downtown San Francisco!