Gold Bulls Should be Raging Silver Bulls
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
I’m extremely bullish on precious metals over the mid- to long-term. As for 2019, I can’t tell you what will happen—and I don’t think anyone else really knows either.
But I will tell you this: if gold leaps, there’s an excellent chance that silver will go through the roof.
Let me tell you why. As you may recall, silver experienced its greatest leaps since the end of the US gold standard in 1980 and 2011.
But while gold and silver move together, they don’t always move in lockstep. The 2011 surge in silver prices was earlier and greater than the one for gold at that time.
Let’s look at this a different way. The chart below shows points for daily closes, with silver prices on the vertical axis and gold on the horizontal axis. The expression of the two prices in each point shows the data as a ratio, often known as the gold-silver ratio (GSR). The grey points show a low GSW (relatively higher silver prices), and the gold show a high GSR (relatively low silver prices).
Several things stand out:
What causes these silver manias is not easy to define. Market conditions were quite different in 1980 and 2011. But perception of a tighter silver market at times when gold is rising seems to be a trigger.
Remember that most silver is mined as a by-product of large mines producing industrial metals. It’s mostly copper, but also lead and zinc. So there can be times when silver production is falling even as precious metals prices are rising. That makes for a tighter market.
But even when supply is stable, rising demand—whether it’s the Hunt brothers trying to corner the market in 1980 or the world going solar now—can also signal a tighter silver market.
I’m not saying that this will happen in 2019—but it could.
The other thing to remember is that silver is both a precious (monetary) metal and an industrial commodity. Most of the silver mined is used in industrial applications, with the most rapid growth in demand coming from the solar-panel makers. It’s also used in many other electronics applications, most of which are growing rapidly.
Higher oil prices, the shift into electric cars, government incentives, and popular culture all contribute to rising silver demand—and will for many years to come.
This brings me to my reasons for being a silver bug in 2019:
Whether 2019 is the year precious metals break out or not, I’d rather be early than late. With Tax Loss Season putting many good companies on sale, I’m actively looking to make new investments in the silver space now.
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