SLV: Any Silver Price Decline Is A Gift, Multi-Year Bull Just Started

My regular readers know I have been very bullish on silver for about 18 months. Finally, the breakout and run higher may have begun in earnest during March-April. My last article on silver’s bullish setup in January here explained the striking phenomenon of historically high lease rates. Such suggested immediate tightness in the physical silver supply/demand marketplace. Basically, the most constructive lease-rate picture (high and inverted rates) since late 2008 existed at the beginning of 2024. In terms of predictive power, silver rose almost +400% (priced in U.S. dollars) over the next three years, between 2008-11.

Today, silver is being supported by skyrocketing demand in the photovoltaic panel market. Although the amount of silver has been in decline per PV cell manufactured, so much growth in solar build out is taking place around the globe, a good 120 million ounces of EXTRA silver are now needed EACH YEAR vs. 2019 run-rates to supply this green energy industry. You heard me right, silver demand for solar rose from 75 million ounces in 2019 to almost 200 million in 2023! And solar demand is expected to expand well beyond current volumes over the next 3-5 years.

Unfortunately for market stability, stagnant to DECLINING mine supply annually cannot keep pace with quickly rising industrial-application demand, so inventories are beginning to implode worldwide. 830 million ounces in 2023 mined supply can no longer hold the market in balance with solar panel production growing fast. With All-In Sustaining Costs for operating mines approaching $18 an ounce for primary-silver assets last year, mining companies are struggling to stay afloat at $20 or $25 for selling prices. For sure, the incentive to build higher-cost mines is non-existent.

The logical conclusion taught in Economics 101 college classes everywhere is rising demand creating a shortage situation can only rebalance with new and rising supplies. To incentivize new supply, with major capital investment involved, much stronger silver prices may soon be required to encourage mine expansions and the build out of new ones. Of course, this process will take years to actually increase mined silver supply dramatically. In the meantime, sharply higher quotes may be necessary for exchange/bank vaults and ETF holdings to be liquidated as a source of metal. And, for people to start trading in old jewelry and silverware as a recycle option, realistically a double or triple in silver prices might be our future.

To sum up the investment argument, yes, silver looks to be headed substantially higher this year and next. The only scenario I can think of that might postpone a monster up move would be a serious recession. This macroeconomic outcome could slow solar-cell production levels. However, a deep recession would equally force central banks around the world to devalue paper currencies, creating inflation and better investment demand for silver in a cyclical future. My view is either silver rises by leaps and bounds soon under a decent economic backdrop, or a year or two down the road after recessionary demand plays out.

As a consequence, for long-term thinkers and those searching for intelligent hedges against developing stock market volatility, I still believe a Strong Buy rating is in order for silver bullion and related assets. The great news today (Monday, April 22nd) is silver declined -5% on the temporary stress relief that a catastrophic Middle East war between Israel and Iran has not broken out (yet).

I have used the pullback as a gift for my account, purchasing extra stakes in the iShares Silver Trust ETF (NYSEARCA:SLV) and abrdn Physical Silver Shares ETF (SIVR). Another excellent pick in the bullion product sector for regular brokerage accounts is the Sprott Physical Silver Trust ETF (PSLV). Each has very strong chart patterns, with mushrooming buy momentum.

Silver Catching Up to Gold Gains in 2024-25?

Silver usually performs best at the end of a sustained move higher in gold, particularly after years of gains. For early investors in a potential silver boom, like today, a number of years of flat prices (or limited advance relative to gold) is a positive development. And, if you can start a move sitting at a high gold-to-silver ratio, even better. Today’s 85x ratio is approaching the biggest stretch of undervaluation vs. gold over the last 100 years. Silver has been less expensive vs. gold only about 6% of the time over the last century! You can view the current gold/silver ratio setup below.

In terms of lagging performance from silver, I have drawn some time periods from 6-months to 10-years for readers to review and ponder. Specifically, I am comparing iShares Silver to the popular SPDR Gold Shares ETF (GLD).

It’s hard to ignore silver may have some catching up for price, meaning a period of silver “outperformance” of gold could be the next big thing in precious metals trading.

6-Month Silver Gains Relative to Gold

1-Year Silver Gains Relative to Gold

3-Year Silver Gains Relative to Gold

5-Year Silver Gains Relative to Gold

10-Year Silver Gains Relative to Gold

Supply Shortfall Catalyst

The main and simplest logic to be long-positioned in silver today is the supply/demand setup. Believe it or not, the physical silver marketplace could be undersupplied by a whopping 20-25% in 2024. Shortfalls in global supply have been an increasingly severe problem since the COVID-19 pandemic appeared.

The high and rising to inverted lease rates for silver since 2021 are indicative of a classic shortage situation. You can really see this idea in the steep falloff in worldwide silver inventories since late 2021. Trading exchange vaults and ETF holdings have been plummeting, while 2024 has the potential for a modern record drop. Combined, these easy to quantify, above-ground stock levels have declined close to 600 million ounces over 24 months.

The wildcards for 2024’s shortfall are industrial demand and investor interest in silver. If the global economy remains resilient and solar panel production numbers beat on the upside, the Silver Institute projects this year (green box below) will almost eclipse 2020s modern-record shortfall (red box) in overall silver supply to match demand. And, if a new black swan appears (like a major war, stock market crash, bird-flu pandemic as examples), any uptick in investor demand could create a record annual shortage backdrop, with inventories falling yet further.

In all honesty, I am thinking this year’s industry expectation of minor investor additions of silver is way too low, with all the geopolitical risks in the world. What this means is 2020s extreme for investor demand (boxed in blue) may be breached this year or next. Then, the silver market and those short could face a wicked squeeze for supply, with price racing through US$50 an ounce.

Final Thoughts

What is silver worth? How do you value it? Silver is both an industrial commodity and a monetary metal. Basically, it is affected by changes in the economy’s overall health and investor demand. My research over three decades has boiled down to comparing silver to gold as forms of globally accepted money. I talked about a price of $35 to $40 as fair value for silver in August 2022 here, explaining this important metal was reaching for one of its lowest relative valuations to other assets in modern times. All told, this fair value target number continues to rise with mining inflation and even higher price levels for alternative investments.

But, the appearance of PV panels is a relatively new issue to factor into the silver supply/demand equation. In the past, industrial demand has changed slowly each year. The rush of demand for solar inventions, as climate change becomes an inescapable problem (with air and ocean temperatures rising to human-existence all-time highs in 2023-24), may be the trigger that pushes silver to far superior gains vs. gold.

First, consider a rebalance to the more typical gold/silver ratio of 40x would roughly double the silver quote to US$57, assuming gold quotes remain the same. However, I am also very bullish on gold because of record fiat debts worldwide, especially in the U.S. If paper currency devaluations are inevitable, gold will only rise over time from US$2350 an ounce today, for it to retain its purchasing power.

Second, putting a “shortage” gold/silver ratio of 20x on $3000 gold gets silver to $150 an ounce in a few years! Don’t say it cannot happen. That would be the type of advance to encourage new mined and recycled supply to market 3-5 years from now. Such may be necessary to match escalating solar panel demand. At these prices, PV-cell alternatives to silver like copper (currently under development) for solar panels may eventually slow silver’s appeal. Yet, the copper market is also facing a shortage setup from green energy demand (everything from electric vehicles to green energy hookups through power lines need loads of copper). If copper prices double and triple at the same time as silver skyrockets, maybe $100 silver will be the new floor by 2028-30.

Don’t think such an explosion in price is possible? Remember, the market value of all easy-to-find silver is in the $70 to $100 billion range, which I have discussed in previous articles. Compared to individual Big Tech companies trading in the $1 to $3 trillion area, and total U.S. equity market value around $50 trillion, it wouldn’t take much capital movement to effectively “corner” silver like the Hunt brothers attempt of the late 1970s.

FYI, the CPI inflation-adjusted peak of 1980 would the same as $220 an ounce today, while the stock market’s relative size vs. GDP output is about 3x the wealth equivalent of 44 years ago. What this means is getting to $200 or $300 an ounce is mathematically possible in the not-too-distant future, should above-ground stocks continue to plummet. In other words, to say $28 or $30 silver is expensive is quite comical.

Another piece of the investment puzzle to consider is the technical breakout pattern just outlined on long-term trading charts. I have drawn this idea below, with a down sloping green trend line representing overhead price resistance from 2020s peak, a little over $30 an ounce. My view is a move above $31 an ounce in 2024 would represent an 11-year-high, and might translate into an avalanche of buying interest in trend followers and hedge funds. Silver has a history of going nowhere for years… then spiking in a price double or triple with little warning.

A rapid run at $40 this year is my baseline forecast. This would get prices close to all-time highs around $50, achieved in both 2011 and 1980.

Then, if solar demand continues to streak higher at the same time as investors start to aggressively add bullion and related ETFs to their holdings, far greater price levels will come into focus during 2025 and beyond.

The main risk to my bullish thesis is a major deflationary/disinflationary recession hits this year. If this is our future, I suspect silver will remain in the mid-$20s for price throughout 2024. A hiccup in demand from solar manufacturers and various industrial users could keep supply/demand closer to balance. In my view, this outcome would prove only a minor speed bump before green energy demand completely outstrips available above-ground stocks a few years from now.

My current risk/reward analysis forecast range is $20 silver during a depression-era bust scenario (-30% from today) vs. best-case upside potential above $50 an ounce (+80%), given a major war between Israel/Iran or China/Taiwan is approaching over the next 6-12 months. My $40 baseline forecast (for a round number) represents close to a +50% gain by the end of 2024 into early 2025. Again, I believe upside far outweighs downside potential beyond 12 months for long-term investors. I rate SLV, SIVR, PSLV and silver bullion as Strong Buys.

Your old-school nutty neighbors stacking/hoarding silver may end up having the last laugh vs. the younger, more sophisticated Big Tech crowd winning at the moment. At least that’s my take on reality.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.