(Kitco News) - For long-term silver investors frustrated by past rallies that failed to hold their gains, a top industry insider argues that the market has fundamentally and structurally changed.
Phil Baker, the former Chairman of The Silver Institute and retired CEO of Hecla Mining, says the current silver market is unlike the failed breakouts of 2011 and 2020, pointing to an unprecedented, multi-year supply deficit and a profound shift in investor psychology as key differentiators.
"You haven't had four years of continuous deficits, number one," Baker said in an exclusive, in-depth interview with Kitco News. "That is a big, big difference between where we were in 2011... It is a very different time".
This underlying deficit is now in its fifth year, driven by what Baker describes as 'insatiable' physical demand running up against a critically constrained supply chain. "You have roughly demand of about 1.2 billion ounces, and you have supply from the mines of about 800 million ounces," he explained. "Recycling puts in maybe 150 million ounces... it doesn't fill the gap".
A 'Generational Shift' in Holding
A key pillar of Baker's "this time is different" thesis is a behavioral change in the physical silver buyer. He points to new data showing that heirs are no longer liquidating their inherited silver, a stark contrast to previous cycles.
"What appears to be happening is those heirs are retaining that silver, so it has become a long-term generational sort of asset that people are retaining," he explained.
This trend is also visible in U.S. retirement accounts, where investors are consistently adding to their physical silver holdings. "In the past, people would put silver into their IRA and they would be done," Baker said. "Now they're adding to it and they're continuously adding to it".
On-the-Ground Evidence from Australia
Baker, who now advises San Cristobal mining, recently saw this physical demand firsthand during a trip to the Perth Mint in Australia. "What they said was they've had more demand over the course of the last five years than they have ever experienced in the history of the mint," he reported.
The tightness of the global market was underscored by his discovery that concentrate from mines in the Americas is now required to satisfy coin demand on the other side of the world.
When presented with recent data showing the Perth Mint's own silver sales fell to an eight-month low in August, Baker was unfazed. "Month by month, things change and it's not necessarily really meaningful for the long term," he countered, pointing to the facility's recent expansion as proof of the sustained trend.
Supply Constraints and a Price 'Shock'
On the supply side, Baker reiterated a point he made to Kitco News in June: the world hit 'peak silver production' in 2016. "Silver mines are small," he said. "There's not the ability to scale up silver production".
The culmination of these factors, he believes, will lead to a dramatic repricing. In a prior communication, Baker forecasted a potential price shock of "$5 to $30... very quickly". In the interview, he expanded on his long-term view.
"I think silver will continue... to outperform gold and get closer to a gold-silver ratio that's probably in the range of 60 to 70," he stated. "And that would suggest a, you know, a silver price that's gonna exceed $50".
He concluded with a bolder prediction: "At some point you are going to have this steep increase in the price of silver... it's gonna definitely be significantly higher than the $50 that we saw in the past".
To watch the full, in-depth interview with Phil Baker, click here.