(Kitco News) – Silver is set to make massive gains during the rate-cutting cycle, and the AI buildout may become the next big demand sector, according to Peter Krauth, author of The Great Silver Bull and publisher of SilverStockInvestor.
Krauth sat down with Kitco Mining at Xplor 2024 in Montreal to examine the state of the silver market and where the investment opportunities will be in 2025.
He said the impact of the Federal Reserve’s rate-cutting cycle on silver prices cannot be overstated, and the historical data backs this up.
“What I did was I looked at once they start cutting rates, and how does silver react after that?” Krauth said. “They would start to cut rates, silver may come off for a bit, but it bottoms and then it starts to take off. In the last three rate cutting cycles, if you go from bottom to peak in the silver price, silver was actually up 332% on average.”
“That could have taken anywhere from about a year to two years,” he added. “But that's still a tremendous return, right? I'm not making it up, you can go and look at the numbers. That's how silver performed.”
Krauth said that if the U.S. economy were to enter recession – which many experts are expecting in the first half of 2025 – there’s a strong play for silver there as well.
“Incrementum did some really good research, they took multiple historical recessions and split it up into five time periods, pre-recession, early recession, mid, late, and then post-recession,” he said. “And silver outperformed gold pre-recession and post-recession.”
Krauth said that coming out of a recession, the U.S. Treasury will be looking for ways to stimulate economic growth as they have in the past, and many of the best candidates for technology and infrastructure investment are silver-intensive.
“For the Treasury to spend, they have to do things that are palatable for voters,” he said. “And one of the most palatable things is infrastructure, because people will argue that everyone benefits from spending on infrastructure.”
“We saw that in the great financial crisis coming out of it, we saw that coming out of COVID, and I think we'll see it in the next recession as well,” Krauth added. “That's very positive for the green transition, things like EVs, things like solar, things like wind, even charging stations for EVs, for example. Now we've got improving solid-state batteries.”
“Silver is key to all of these things, and that's why I think that we may be underestimating how silver will perform in a future recession.”
Looking ahead, Krauth said that AI could be the next major demand driver for silver, and it also connects to the solar story.
“AI is a driver in a couple of ways,” Krauth said. “On the technology side, these microchips need silver to function, and it's very effective in them. The other side of it is in storage indirectly, because storage requires energy to run data centers.”
“The amount of data that will be generated in 2025 will be 50 percent more than all the data globally between 2010 and 2016. It's just incredible,” he said. “And AI is feeding into this. A chat GPT search takes 10 times as much energy as a Google search, so we need the energy.”
Krauth said that while the big-data behemoths like Microsoft, Google and Meta plan to tap into nuclear energy to power their data centers, everyone else will need to find other scalable and affordable alternatives, and solar power – with its silver-filled panels – will be the next-best option.
“For others who are also going to need a lot of power to power their data centers, I think solar becomes the obvious other choice,” he said. “Yes, it does have a bigger footprint. It needs large slices of land to build the solar parks. However, you can permit them much more quickly [than nuclear], you can draw the power from it quite easily, and this could be almost self-contained. If you have the land to build a data center where you've also got land to have a solar park next to it, you're basically off the grid.”
“The solar park is right there next to you, and it's supplying your data center, so you depend on no one.”
For Krauth’s analysis of the latest supply and demand data and to discover some of the strongest potential investments in silver equities, watch the above video.
Coverage of Xplor 2024 was sponsored by Radisson Mining Resources.
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