Silver outperforms Gold
- When gold reached a new all time high of $2089/oz in August 2020 silver only achieved a peak of $30/oz versus its all time high of $50/oz in 2011. Many analysts expect that the resumption of the upward price trend should see silver catch up with gold and exceed its former high. The following charts show the outperformance of silver in secular bull markets.
The Beta of Silver Mining Companies gets as high as 3x
- Beta measures the risk or volatility of a company’s share price in comparison to the market as a whole. For example, a company with a beta of 1.1 will theoretically see its stock price increase by 1.1% for every 1% increase in the price of the underlying commodity.
The Gold Silver Ratio is Dropping
- The gold/silver ratio has been as high as 125/1 in March 2020. From 1693 to 1815 the gold/silver ratio was 15x (see chart below) and for most of the past two decades, the ratio has ranged from roughly 50:1 to 70:1. Based on the current ratio of 68:1 on June 1, 2021, silver can be considered inexpensive relative to gold.
- Some industry analysts argue that the gold/silver ratio could go to 8-10 whilst some people even don’t exclude a gold/silver ratio of 1.
Silver is an Industrial as well as a Precious Metal
- Some 55% of silver consumption is from industrial applications such as electronics, medicine, solar water purification while some 20% of total silver supply is from recycling (50%+ recovery rates).
Source: Metals Focus
- Total mine supply, which has been declining since 2015 due to underinvestment in exploration, is approximately 800 Moz while recycling is around 200 Moz. Looking at all silver applications it seems that at present investment demand is the biggest swing factor for silver ranging between 180 Moz desinvestment in 1996 versus a 200 Moz investment in 2011.
- EVs will show very robust future growth expecting to account for 300 Moz in 2025
Source: The Silver Institute
The Use of Silver in Solar Applications is Increasing Demand
- The use of silver for EVs is increasing strongly as growth figures for EVs show a very high CAGR in excess of 50%.
- An average solar panel uses some 20 grams or 0.643 troy ounces of silver. The London based CRU study predicts that the PV sector will consume about 81 million ounces of silver per year over the next decade. Two thirds of an ounce of silver in every solar panel may not sound costly given today’s silver spot price but its contribution is invaluable. Silver’s cost contribution to solar panels outweighs its proportional expense over virtually any other application it has other than perhaps jewelry, silverware, or in .999 fine bullion coin or bar form. For instance, the average cell phone has only 200 to 300 milligrams of silver (0.006 – 0.009 oz). An average computer contains about 1 gram of silver (0.032 oz).
Source: The Silver Institute
Strong Silver Demand forecast (300 Moz) from EVs by 2025
- In hybrid vehicles, silver use is at around 18-34g per light vehicle while battery EVs (BEVs) are believed to consume in the range of 25-50g silver per vehicle. Silver demand from automotive for 2021 is expected to be around some 60 Moz with a forecast 90 Moz for 2025.
- Though on the basis of global sales of battery electric vehicles (BEV) and other EVs these vehicles are expected to reach sales of nearly 2.5 million in 2020, and a subsequent rise of about 70% in 2021. Whilst the forecast for 2025 is that global sales will top 12.2 million vehicles, indicating annual growth of nearly 52% (compounded) according to IHS Markit, which would mean that the silver automotive demand would more likely be close to 300 Moz versus a conservative 90 Moz of silver forecast for 2025.
Source: The Silver Institute
