Silver, often called the “poor man’s gold,” has been shining brighter lately.
Comex silver futures for September delivery surged to more than US$26 an ounce earlier this week before retreating to the US$24 level. The metal has doubled from its low in March amid the coronavirus stock-market sell-off, but is still well off its 2011 peak of almost US$50 an ounce.
Although the price of silver can still pull back occasionally on profit-taking, some precious metals experts say the party is far from over.
“There’s a high probability of gold going to US$4,000 in a three-year scenario,” says Frank HoImes, chief executive officer and chief investment officer at U.S. Global Investors in San Antonio, Tex. “If that happens, then silver could easily go to US$100 an ounce.”
Gold futures for August delivery also blew past their 2011 record high earlier this week. The yellow metal now trades at around US$1,960 an ounce as investors have piled into safe-haven assets amid political and economic uncertainties and the COVID-19 crisis.
“But silver always lags the movement in gold,” says Mr. Holmes, whose firm runs resources mutual funds and U.S. Global Go Gold and Precious Metals Miners ETF (GOAU-A). “In a bull market for gold, [silver] will rise more ... In a bear market, it will fall more.”
His projection for the price of silver stems from the closely watched gold-to-silver ratio, or the price of an ounce of gold divided by the price of an ounce of silver, to determine how expensive silver is relative to gold. That ratio has been over 80 to 1 range recently. Using a long-term average of about 40 to 1, silver could climb as high as US$100, he says.
A global wave of monetary stimulus or “money-printing,” which can lead to inflation, is helping drive precious metals prices higher, he says. In the 2008-09 global financial crisis, the U.S. central bank “printed US$3-trillion,” he says. “If you look at this cycle, it is going to be US$10-trillion. It’s already at US$7-trillion.”
All the G7 countries are printing money to ease the economic fallout from global pandemic, Mr. Holmes says . “[This joint effort] has never happened before. ... They’re all printing money faster than you can produce gold and silver.”
The silver price has also been propelled recently by a reduced supply of the metal due to mine shutdowns caused by COVID-19 pandemic and investors turning to the cheaper metal versus more expensive gold bullion and coins, he adds.
Silver’s greater “beta,” or volatility, than gold also translates into similar moves in equities, so “a 10-per-cent move in gold stocks would be a 15-per-cent move up in silver stocks,” and vice versa, he adds.
Maria Smirnova, senior portfolio manager with Toronto-based Sprott Asset Management LP, expects silver’s rally to continue after “healthy pullbacks,” and sees no reason why the metal can’t exceed its peak of nearly US$50 an ounce.
Gold has now broken through its all-time high, and “we’re not anywhere close to that high in silver,” says Ms. Smirnova, who manages Ninepoint Silver Equities Class mutual fund. “We have been bullish for several years. ...Gold has been rallying quietly since 2015, but nobody paid attention.”
Silver sold off sharply in March to US$12 an ounce on worries about industrial demand for the metal, she says. “People threw in the towel, assuming that silver’s industrial use would plummet because the economy is shutting down.”
But silver and gold bullion, which don’t provide income, now benefit from near-zero or negative real interest rates, which make bonds are less attractive, she says. “We don’t see central banks starting to raise interest rates for several years.”
Rising interest from investors has also pushed silver prices higher, Ms. Smirnova says. The market for silver is about a billion ounces a year, but silver exchange-traded funds have already snapped up 260-million ounces over the past four months, she adds.
Once economies re-open, industrial demand should be a further catalyst for silver prices, she says. Silver is used everything from solar-energy panels to battery-electric vehicles and in semiconductors and electrical components in fifth-generation wireless telecommunications towers.
Gold stocks, meanwhile, outpaced their silver peers until April, but silver stocks are now starting to outperform gold equities, she says. “We are seeing silver companies [that typically mine gold or other metals too] raise money in the market. …There is demand for these stocks.”
Ms. Smirnova’s fund – the only silver equity fund in Canada – rose 112 per cent for the year ended July 28, according to Morningstar Canada. Top holdings include Wheaton Precious Metals Corp. (WPM-T), a royalty play; Pan American Silver and Silvercrest Metals Inc. (SIL-T).
Rohit Savant, vice-president of research at New York-based commodities research firm CPM Group, says his firm put a buy signal on silver late last year, but has “become even more bullish” because of the impact of COVID-19.
Gold and silver were already positioned to benefit from fundamental tailwinds, but the pandemic accelerated their price rise, he says.
“You had loose monetary policy. Economic growth was fine but wasn’t exactly strong. And there were political risks around the globe, such as the China-U.S. conflict and Brexit,” Mr. Savant says.
His near-term target for silver is about US$25 an ounce. Profit-taking could take it down to US$22.50 or even US$20 in the short-term, he says. “Prices could test US$30 in the medium term, but longer term, we see silver prices getting back to its record of US$50 and go potentially higher.”
Still, higher silver prices could face headwinds as industrial users try to cut costs by finding ways to reduce the amount of the metal they need, he says.
His firm has a US$2,000-an-ounce target for gold over the medium term, but the price could climb higher long term, he adds. However, the yellow metal can be affected by demand for jewellery fabrication, which is “extremely sensitive to prices,” he says.
Given the sharp run-up in both metals, “I think you’ll see a short-term pullback,” he says. “But a lot of investors are going to see it as a buying opportunity,” especially if they didn’t participate in the recent rally,.
“At this point, you can still buy the dips and make some money,” he says. “But silver is definitely a high-risk, high-return asset. ... It’s a lot riskier than gold, but you also have a much better return if you can get in and out at the right time.”