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Silver Precious Metal: Key Influences Poised to Drive Silver Upward

Isaac Nuriani    |
May 7, 2021

I’m going to get right to it. There’s a lot to like about silver precious metal these days, in my opinion. And as solid a year as silver had in 2020 – up nearly 50% – there are real indications the best may be yet to come.

In my view, silver’s robust prospects are attributable to two principal factors: 1) a continuation of expansive fiscal and monetary policies that potentially threaten dollar stability, and 2) an anticipated outsized demand for industrial silver attributable to the worldwide emphasis on green energy products development.

Silver precious metal’s capacity to thrive both as a perceived often safe-haven asset and an essential industrial metal is well-known among precious metals experts. This capacity means silver has the potential to thrive during periods when conditions reflecting both economic recovery and economic uncertainty happen to coexist. No other precious metal possesses these properties to this degree – not even gold.

Right now, the Biden administration is pursuing an expensive policy agenda that could cue adverse inflationary consequences. It is doing so at the same time industrial silver is expected to see especially heightened demand as governments worldwide embrace the climate change battle. Experts believe the combined effect of these two factors could result in an overall upward trend for silver lasting months – even years.

Silver Precious Metal Could Benefit from Costly Biden Policy Plans

Much of silver’s appeal is based on the metal’s status as an often-perceived safe-haven asset and as a hedge against government and Federal Reserve policies that potentially weaken the dollar. In light of what appears to be shaping up as an especially wasteful presidential administration, it’s very possible that appeal could grow significantly through the foreseeable future.

We’re just a little more than 100 days into the new regime, and yet there seems no letup in the varied, ambitious spending priorities of President Biden and the Democrats. The new administration wasted no time getting started on that effort, enacting into law the $1.9 trillion coronavirus-relief measure known formally as the American Rescue Plan. Since then, the president has unveiled two more ultra-expensive spending proposals he hopes become law: the $2.3 trillion American Jobs Plan and the $1.8 trillion American Families Plan.

The American Jobs Plan has as its principal focus the revitalization of the nation’s infrastructure, while the American Families Plan is designed to take a giant step toward expanding the government safety net. The American Families Plan makes permanent the generous pandemic-cued expansions of a number of benefits to households, including the child tax credit and Obamacare subsidies. It also includes a number of other unprecedented government-paid benefits, such as universal preschool and access to two “free” years of community college.

The possible implications for silver resulting from all of this spending could be significant. This is particularly true given the commitment of the Federal Reserve to keep interest rates low even in the face of inflationary pressures.1 In a recent article for Streetwise Reports, independent precious metals analyst Peter Krauth succinctly outlined the current hedge case for silver and other precious metals in the context of aggressive spending regimes:2

Most developed and many developing nations have been in multiyear or even multidecade deficit scenarios. This now looks to have become a permanent state, at least until we reach some sort of global financial reset.

And interest rates being maintained at 5,000-year lows will only encourage more debt. Couple that with many countries borrowing to meet interest payments, and central banks soaking up much of that new sovereign debt, and inflation havens like precious metals gain strong appeal.

Commenting on the potential impact of the ambitious Biden spending agenda, the New York Times said the administration seeks “to restore the federal government to the role it played during the New Deal and Great Society.”3 It seems the potential impact on perceived safe-haven assets such as silver could be equally momentous.

Silver Precious Metal Poised to be Biggest Beneficiary of Green Energy Spending Says Analyst

Industrial buyers of silver account for more than 50% of the metal’s annual demand, which means silver already is well-positioned to benefit from the general global economic recovery expected to continue through the foreseeable future.4 Silver’s significance as an industrial metal is rooted in its conductivity of heat and electricity – unmatched by any other metal.  But when you further consider just how inherently important such properties are to the burgeoning green energy industry, it’s reasonable to speculate that silver has an especially bright future ahead.

Jeffrey Currie, global head of commodities research at Goldman Sachs, is particularly enthusiastic about silver’s prospects, specifically on the basis of the metal’s importance to green energy. In an appearance on CNBC’s “Fast Money: Halftime Report” in February, Currie said that, while both gold and silver can serve as a hedge against possible currency debasement, he views silver as “a turbo-charged version of gold” right now because of its indispensability to solar panel manufacturing.5

Referring to the prioritization of green energy initiatives in Biden’s spending plans, Currie noted that with silver “you get that added boost that a lot of that spending … is going to be green [capital expenditures]. That green capex goes into solar panels and then silver is the biggest benefactor.” Sure enough, one feature of the president’s proposed American Jobs Plan is both a substantial extension and expansion of the federal solar tax credit. This tax credit allows businesses and individuals to deduct 26% of the cost of installing a solar energy system from federal taxes.6

More generally, of course, silver’s anticipated role in green energy technology is expected to grow on a variety of fronts. According to a Silver Institute estimate, predicted growth in the manufacture of both hybrid and Battery Electric Vehicles (BEVs) will translate to a near-50% increase in the amount of silver used by the automotive industry between now and 2025.7 Another estimate suggests electric vehicles will account for nearly half of all silver used in automobiles by 2040.

Bonus Factor: Silver’s Higher Volatility Could Maximize Effects of Positive Fundamentals

There’s a “bonus” factor that could serve to help maximize the effects of the two potential silver drivers already noted: The silver market’s inherent volatility.

The silver market is small – much smaller than the gold market. The total market capitalization of gold is estimated to be a little more than $11 trillion right now.8 The total market capitalization of silver? Roughly $1.4 trillion.9 That translates to a silver market just 12% the size of the gold market.

Smaller markets tend to be more volatile. This is because their relative lack of size means they can be impacted more substantially by dollars either entering or exiting en masse. Asset volatility is often portrayed as a negative, but sudden and rapid price changes certainly can be beneficial, as well.

For example, as precious metals gained great favor in early summer as the pandemic’s effects spread and both the Federal Reserve and U.S. government applied emergency expansionary measures as a defense, silver soared.  In the span of just a little over one month – from July 1 to August 7 – silver jumped roughly 48% while gold gained “only” 13%.

As the primary drivers of silver continue to take shape, the metal’s potential to exhibit volatility to the upside becomes greater, in my opinion. And I’m not the only one who feels this way.

In February, the Silver Institute issued a statement in which it declared global demand for silver would reach an eight-year high in 2021.10 As a part of that statement, the organization specifically cited silver’s smaller market and greater volatility as a potential added positive influence on the metal’s future price action. “Given silver’s smaller market and the increased price volatility this can generate, we expect silver to comfortably outperform gold this year,” the Silver Institute said.

Silver Precious Metal Optimism Reflected in Price Projections

There is unquestionably a great deal of optimism surrounding silver precious metal’s near-term prospects throughout the precious metals asset space. With that said, are there any price targets a retirement saver might consider as a part of his or her evaluation of silver as a possible asset addition?

Toward the end of 2020, Saxo Bank made headlines forecasting silver would reach 50 dollars per ounce this year.11 Saxo pointedly said at the time that it would be equal parts inflation hedge and increased industrial demand that would push silver to that figure. Also late last year, analysts at Citibank forecasted silver to hit anywhere from 40 dollars per ounce to as high as 100 dollars per ounce by the end of 2021.12

In his article that I referenced earlier, precious metals analyst Peter Krauth said he sees silver rising just north of 300 dollars per ounce before the metal’s run is finished. His basis for that projection is rooted not only in the “pure” fundamentals of an expected inflationary environment and improved industrial demand, but also in a key technical indicator – the gold-to-silver ratio. Krauth expects to see the ratio fall from its present level of about 67 down to 15, suggesting a massive uptick in the value of silver relative to gold.

And for his part, Augusta Precious Metals’ director of education Devlyn Steele sees silver reaching 125 dollars per ounce by 2023. Steele contends we now are observing cthe same broad economic forces in play that we saw from 2008 to 2011 when silver climbed nearly 400%. These forces include massive deficit spending, drastically accommodative monetary policy and a move toward improved industrial demand for the metal.

I encourage retirement savers to keep such price projections in what I think should be the proper perspective, as one piece of information that’s incidental to the impact – both current and anticipated – of the primary drivers thought to be moving silver. Ultimately, there are sound fundamental reasons to think silver could rise significantly higher from present levels. In my view, if you are thinking of adding silver to your base of assets, it is those reasons that should remain your primary focus.

 

1 Jeff Cox, CNBC, “Fed holds interest rates near zero, sees faster growth and higher inflation” (April 28, 2021, accessed 5/6/21).

2 Peter Krauth, Streetwise Reports, “Is Silver Going to 300?” (May 5, 2021, accessed 5/6/21).

3 Glenn Thrush, The New York Times, “Here is a guide to Biden’s three big spending plans – worth about $6 trillion” (April 28, 2021, accessed 5/6/21).

4 Maria Smirnova, Sprott, “Silver’s Clean Energy Future” (February 17, 2021, accessed 5/6/21).

5 Kevin Stankiewicz, CNBC, “Silver is a ‘turbo-charged version of gold’ due to use in solar panels, Goldman’s Jeff Currie says” (February 4, 2021, accessed 5/6/21).

6 Solar Alliance, GlobeNewswire, “‘American Jobs Plan’ Provides Significant Support for U.S. Solar Industry” (April 1, 2021, accessed 5/6/21).

7 The Silver Institute, “Silver’s Growing Role in the Automotive Industry” (January 2021, accessed 5/6/21).

8 CompaniesMarketCap.com, “Gold’s Market Cap” (May 6, 2021, accessed 5/6/21).

9 CompaniesMarketCap.com, “Silver’s Market Cap” (May 6, 2021, accessed 5/6/21).

10 Reuters Staff, Reuters, “Silver will outshine gold as demand hits 8-year high in 2021 – Silver Institute” (February 10, 2021, accessed 5/6/21).

11 Saxo Bank, “Saxo Bank 2021 Outrageous Predictions: The Future is Now” (December 8, 2020, accessed 5/6/21).

12 Stockhead, “Citi outs itself as major silver bull, says price could reach US$100/oz” (November 9, 2020, accessed 5/6/21).

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