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Could 2018 Be the Year for Silver?

Could 2018 Be the Year for Silver?

Lost in the shadow of gold and cryptocurrency, silver quietly gained over 6% in 2017. Even so, the white metal was considered an underperformer. Gold was up better than 12% on the year. But with silver languishing a bit behind gold, there are strong indications that 2018 could prove to be a big year for the white metal.

In fact, according to an article in the Business Standard, mainstream investors have started betting big on silver in anticipation of a big price upswing in 2018.

The silver-gold ratio remains historically high. This means silver is undervalued compared to gold. Currently, the silver-gold ratio stands over 76 to1. This means you can buy 76 ounces of silver with one ounce of gold. Compare that with the historic average ratio which hovers around 16:1. The modern average over the last century is around 40:1. As Peter Schiff said in a video over the summer, “This is silver on sale.”

It’s one of the greatest silver sales of all time, relative to the price of gold.”

The mainstream investment world has its eyes on silver as we enter the new year. A Goldman Sachs report released recently was extremely bullish on silver and forecast the white metal to outperform gold in 2018.

Typically, silver tends to outperform gold at the current state of the business cycle, as it is more strongly leveraged to global growth, given its significant industry use. However, the relationship broke down post-2011, as price induced silver industrial demand to diverge from the growth of the business cycle. Now, we are finally beginning to see evidence of silver industrial demand picking up with strong global growth.”

The move toward clean energy will likely be a boon to silver. China, in particular, continues to rapidly increase solar energy production. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020. Last year ranked as the strongest on record for solar-related silver demand.

Silver demand is also on the rebound in India. We tend to think of India as gold country, but Indians also have a cultural affinity for the white metal. The country is one of the leading sources of world silver demand.

This boost in demand comes during a period of tightening silver supply. As we reported in November, two-thirds of the top silver miners suffered significant production decreases in 2017, according to information released by World Metal Statistics. Through the first eight months of last year, silver production in Chile dropped 20%. Australian production fell by 19%. Silver production in Mexico was down 2%. Peru saw a 1% production decline. And China had the biggest drop in mine output, according to the report, falling by a whopping 25%.

Considering these basic supply and demand dynamics, it’s no wonder Goldman is looking at silver. And its not alone.

Bank of America also forecast a good year for silver, predicting gains of around 8% in 2018. A Bank of Nova Scotia report contained similar sentiment, saying that momentum indicators are bullish for the white metal.

Silver tends to get lost in gold’s shadow, but it seems more investors are taking a peek at the white metal. Back in August, we offered five reasons to buy silver.  With the silver-gold ratio at such a high level, and basic supply and demand dynamics pointing toward increasing prices in the future, this is a good time to take advantage of silver at what could be the lowest prices we’ll see this year.

 

in: Peter Schiff