Silver under $30 is really cheap as inflation drives commodity prices higher - Crescat Capital
(Kitco News) - The investment story in silver is so much bigger than the market's short-lived social media-induced rally. Instead, investors should be focused on the precious metal's long-term value, according to one portfolio manager.
In a recent telephone interview with Kitco News, Tavi Costa, partner and portfolio manager at Crescat Capital, said that he is extremely bullish on silver as supply is expected to drop while investment demand remains consistent. He explained that the silver market faces the most significant supply and demand mismatch in recent history.
"Silver sub-$30 an ounce is the most attractive macro-economic asset in the world today," he said.
The comments come as silver prices test the top of their recent consolidation range. March silver futures last traded at $27.665 an ounce, up more than 1% on the day.
Costa added that it is difficult to be bearish on gold and silver as governments and central banks worldwide continue to flood financial markets with unprecedented stimulus measures. He explained that all this liquidity will eventually push inflation pressures higher.
"Investors are already starting to see that inflation is out there and that's why I like hard-assets so much," he said. "Gold looks really cheap. Silver looks really, really cheap. Oil looks really cheap as well. It is just ridiculous people that are staying on the sidelines in this environment."
Looking outside silver's role as a monetary metal, Costa said that he also sees potential for silver as industrial demand returns to normal levels. He added that because of the 2020 supply disruptions, it won' take a lot of demand to squeeze physical supply further. He said that he continues to fee further supply issues down the road.
"I just see a lot of supply constraint issues. I'm building models, looking at cap-ex cycles," he said. "No one is spending any money on exploration, the ones spending money on infrastructure."
As silver prices continue to benefit from shifting supply and demand fundamentals, Costa said miners and silver producers will continue to be attractive investments. Although miners haven't put a lot of new capital in exploration, Costa pointed out that they are increasing their dividends, giving back to investors and cleaning up their balance sheets.
He added that silver producers are in strong positions to capitalize on higher prices. He said that there is a perfect storming brewing in the silver market that could last for years to come.
Truly remarkable what's going on with the precious metals industry.— Otavio (Tavi) Costa (@TaviCosta) February 13, 2021
+48% in 2020
If only you knew how much leverage high-quality gold/silver explorers have to rising metal prices.
The party hasn't even started.
"We are seeing a culmination of a fundamentally cheap story along with the supply problem of the whole industry. Along with the massive central bank balance sheets that are here to stay," he said. "I can't think of, of, of a way where miners in the next three years won't be going higher."