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Market News


Silver Surge: Construction of New Mega-Vault Points to Possible Increases in Silver Demand

April 16, 2021   |   Posted By Isaac Nuriani

Some experts believe silver is on the verge of a tremendous surge in demand at this time in history based largely on its indispensability as an industrial raw material. Some have anticipated this increase in demand based on both business’ and government’s emphasis on silver in green energy technology. As the metal with the highest heat and electricity conductivity, many expect silver to benefit directly from global initiatives tackling climate change.

But something else is going on that seems to support a possible upcoming sharp increase in silver demand. Silver storage – both actual and anticipated – is on the rise. Bloomberg recently published an article about the substantial efforts of one Singapore metals dealer to build a massive silver storage facility. Construction of this enormous silver vault suggests people are preparing to store more silver, which indicates we could indeed be at the outset of a silver surge.

Metals CEO: Singapore Silver Vault Will Be “Iconic”

Gregor Gregersen, founder of Silver Bullion Pte Ltd. in Singapore, is the dealer building the mammoth vault for silver.1 Clearly Gregersen and his company expect big things in the way of silver demand in the months and years ahead. When the project is finished, the facility will stand six stories high and have the capacity to securely warehouse up to 15,000 tons of silver. “The idea is to make this into a really iconic building,” Gregersen said. “There isn’t really a facility built specifically to store large quantities of silver securely.”

Does Gregersen know something about silver’s near-term prospects the rest of us do not? Constructing this state-of-the-art facility exclusively for storing silver seems like a bold expression of faith in the metal’s fortunes – a gamble, even. However, in the context of the growing array of analyses, intelligence and other data that say silver is poised to surge, Gregersen’s venture may prove to be not so great a gamble in the end.

Philip Klapwijk, managing director of Hong Kong–based precious metals consultancy Precious Metals Insights Ltd., would seem to agree. “The outlook for demand growth for silver over the next few years looks very positive, especially across a wide range of industrial applications, including solar, 5G and automotive,” Klapwijk told Bloomberg. “That, coupled with ongoing high levels of investment is likely to create the need for more dedicated storage space for silver in bullion and also intermediate forms.”

Silver Storage in London Vaults Hits Record Total in March

Signs of increased silver vaulting are occurring right now in key metals markets. For example, according to the London Bullion Market Association, the amount of silver stored in London vaults rose 11% from April to March, reaching a new record high of nearly 39,000 metric tons.2 What makes this so notable is that London is the global hub of over-the-counter (off commodity exchanges) gold and silver bullion trading around the world, and the traders principally are large global financial institutions and high-net-worth individuals.

The Silver Institute projects global demand for physical silver will reach a six-year high this year on the basis of both its industrial and investment appeal.3 That would represent an 11% increase over 2020, when silver appreciated nearly 50%. This increased demand likely will intensify the need for greater silver storage capacity.

Some analysts who are expecting big things of silver specifically say the physical form of the metal is the best way to own it. In a recent conversation with Kitco News, ex–JP Morgan managing director Jon Deane identified several factors he believes could send physical silver as high as $60 per ounce this year.4 Factors he noted include the green energy movement and the very real possibility the economy could continue to struggle even as inflation creeps higher. When asked by Kitco about the best form of silver to own right now, Deane responded flatly, “Physical.”

Variety of Clues Point to Silver’s Potential

Gold obviously receives a great deal of attention from those interested in precious metals, and silver can find itself overlooked. But as I’ve suggested many times, retirement savers who consistently look past silver might do so to their own detriment. Silver’s history of thriving during economic turmoil and its importance as an industrial metal are well-established.

Not only does silver have a great track record, it often is considered undervalued compared to gold, which means it’s well-positioned to appreciate. Last year, precious metals analysts at CPM Group suggested the then-current gold-to-silver ratio – around 70 – in the context of the economic environment, potentially could fall much further.5 Substantial drops in the ratio historically often have corresponded to marked increases in the price of silver.

Where silver goes from here is anybody’s guess. As time goes on, many American savers will recognize the potential this popular precious metal offers as a savings asset. They’ll watch for news or data that points to increasing prices, including projections of pro-silver conditions such as a weak dollar, anticipated growth in industrial demand, and robust analyst predictions.

Other times, however, the potential of silver may be telegraphed through less overt cues, such as the decision by an international metals dealer to construct a massive vault for storing silver. Astute retirement savers won’t make big changes to their holdings solely on the basis of these less-overt clues, and they should never make big changes without consulting their personal tax and financial professionals. But this kind of “quiet intelligence” on silver should be a part of the evidence considered.

 

1 Ranjeetha Pakiam and Yvonne Yue Li, Bloomberg, “Singapore Dealer Prepares Vault for 15,000 Tons of Silver” (April 11, 2021, accessed 4/15/21).

2 London Bullion Market Association, “London Vault Holdings Data” (April 2021, accessed 4/15/2021).

3 The Silver Institute, Silver News, “Silver Demand Forecast to Rise 11 Percent in 2021” (February 2021, accessed 4/15/21).

4 Anna Golubova, Kitco News, “Silver is ‘the best trade’” (March 2, 2021; accessed 4/15/21).

5 CPM Group, “The Gold:Silver Ratio” (accessed 4/15/21).

 

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