Silver is all too easily and often forgotten standing in the shadow of its big brother gold as it does so much of the time. Analysts and investors stopped overlooking this other safe haven metal on Monday as the prices of silver smashed through a two year old high, reaching over $21 per ounce. Silver is now up an impressive almost 49% on a year to date comparison. Despite this fact, the little brother of gold likely still has more room to run than does the yellow metal at this point. We’ll look at the several key reasons here.
China Massively Increasing Its Imports of Silver
As with most good bull market rally stories over the last decade or more, it all starts with China. The Wall Street Journal recently reported that silver roared to a new two year long high this past Monday when Chinese buyers placed serious bets on both the silver futures market and by acquiring enormous quantities of the physical silver metal itself. On the Fourth of July holiday, the price of silver in spot markets rocketed nearly 7% as physical silver contracts and benchmark futures trading in Shanghai hit their limit. Silver futures for September went for $20.41 per ounce on the action, having reached over $21 an ounce in the prior 24 hours period.
China has also continued to be one of the world’s largest silver importing countries because of the metal’s myriad of industrial uses. Thanks in no small part to China’s massive solar panel construction, they now consume a full 20% of worldwide silver demand. In the first ten months of 2015, Chinese silver imports reached 2,678 tons, as much as they imported for the entire year of 2014, per the Wall Street Journal.
Solar Power Industrial Demand For Silver Growing
Speaking of solar power and panels, this has become the hottest fast growth industrial use for the metal in recent years. Silver is finding a larger use for building solar panels now than ever before. An impressive 10% of all global silver demand now stems from new solar panels. This source of demand only looks set to continue to grow in coming years. Silver has this advantage over gold in that it is not only a significant investment commodity, but also a major industrial use one as well.
Silver Has More Room to Run Up To Its Former High than Gold Does
Silver has more attraction than its dual nature as both an industrial and investment metal. Its all time high is still far away at over $49 an ounce from its peak level in 2011. This means that silver has 133% more to go to reach its former glory. Compare this to gold’s former high of over $1,900 per ounce at the same time. Gold only has around 41% more to rally before it runs into its all time high. This makes silver’s range of potential appreciation look a whole lot more attractive than gold’s at the moment. As a case in point, silver has run up by approximately 19% from the global financial uncertainty created by the Brexit vote results at the same time that gold has managed to tack on an about 8% rally.
Gold to Silver Ratio Indicates Big Gains Due Silver
The age old gold to silver ratio also indicates that big gains are due for undervalued silver prices. Historically, for every single ounce of gold that was mined around ten ounces of silver were unearthed. The historical gold to silver price ratio averages around 40:1 (and even lower if you look at a longer time frame). These days the ratio typically trades in excess of 70:1. Assuming that gold prices hold their own, then silver is trading at substantially below a historically normal comparative price. This presents major opportunity for this long followed and traded ratio to come back to a more normal level, meaning that silver prices would have a significant way to run.
China Leading the Way In the Competitive Global Currency Devaluation
The Brexit vote results have kicked off the latest round in the ongoing competitive global currency devaluation wars. China’s own Yuan recently reached a record low. The British pound has now touched 31 year lows. The European Union has similarly been engaged in quantitative easing and unparalleled monetary stimulus for many months now in an effort to bring the Euro down as well. The only major currencies left to devalue against are both the U.S. dollar and safe haven assets like silver and gold. Practically all of the major fiat currencies are swirling around the proverbial drain in a race to the bottom to export their troublesome deflation to other countries.
Analysts Predictably Hiking Silver Price Forecasts
In the past week, French investment banking giant Societe Generale boosted its both short and longer term priced predictions for silver. They currently forecast silver prices averaging $18 for the remainder of 2016. They also believe bullion prices will peak in 2017 before leveling off in later years. All of these reasons make now as good a time as any to stock up on silver bullion in your retirement accounts while it can still be had relatively cheap compared to its big brother gold.
W. D. Crowder is an American published author with decades of experience in financial writing. He specializes in many areas, including: investment, economics, international relations and more.
