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Silver poised to outperform gold in 2024 - ByteTree's Charlie Morris

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(Kitco News) - Silver is “cheap gold,” but the gray metal’s recent resilience and projected supply deficits mean its upside could be far greater than gold’s, according to Charlie Morris, Chief Investment Officer at Asset Management.

“Most precious metals analysts would broadly expect gold and silver to end up in roughly the same place over the long term, but silver would get there with more sleepless nights,” Morris writes. “So why bother? The answer is that when silver is undervalued, as it currently is, there is the opportunity for a catch-up rally. Not only that but under the right conditions, it will overshoot.”

Morris points out that the Gold to Silver Ratio (GSR) is currently around 79, so one ounce of gold is worth 79 ounces of silver. “Just to be difficult, I will invert the chart to become the Silver to Gold Ratio (SGR). One ounce of silver is worth 0.013 ounces of gold, which is the reciprocal. The SGR is useful because when the SGR line is going up, silver is outperforming gold. That makes it easier to interpret the chart.”

He said that since the late 1990s, gold has played “an increasingly important role in the informal monetary system” after leading the formal money system for centuries prior.

“You could argue that if gold’s role has been re-established, there ought to be a more elevated subsidiary role for silver, and that’s what the market might be telling us,” Morris says. “In recent weeks, we have seen silver outperform the gold miners, a trend that has been going on for 20 years. Not only that, but as you will see, the silver market is in deficit, and the price remains firm despite selling pressure from investors.”

He notes that even with silver’s recent strength, “it isn’t a bubble by any means” because investors have been selling silver for the last two years and their holdings are not much higher than in 2011 when the price last hit $50 an ounce.

“What’s interesting about the chart above is how the silver ETFs accumulated 500 million ounces of silver pre-2011, which coincided with the near 10x price surge,” Morris says. “That levelled off until 2020, only to rise in the post-pandemic environment” alongside meme stocks and cryptocurrencies, briefly reaching $30 before retreating.

He also notes the February 2021 surge in silver ETFs, but says “the money soon left, and once again, the gold and silver aggregate ETF holdings are back in line.”

Now, in 2023, there is no meme stock craze, cryptocurrencies have been struggling for over 18 months, and ETFs are still seeing outflows. “That makes the current price action in silver quite impressive,” Morris says. “The price remains firm while there is external selling pressure from investors.”

He also points out that the silver market is facing its largest deficit in over ten years, driven by declining mining production and massive increased demand from the solar industry. “The result is a market deficit that is expected to continue into next year,” he says.

Morris says the only thing keeping the market in balance are those ETF outflows. “The bottom line is that if you think there will be more solar panels over the next decade, then the silver market will remain tight, and that’s the opportunity,” Morris says. “If investors were to reverse their silver sales, it wouldn’t be difficult to see silver challenge $50 for the third time.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.