In the last couple of weeks there has been a significant uptick in the price of silver.
From under 50 dollars an ounce ( an ounce is 31.1 grams), silver has moved to 57 dollars an ounce in a very short while.
This is not an isolated bubble or a rally that will peter out. I expect silver to shoot up significantly in the next few weeks, months, and years.
First, some background. Gold is currently at 4200 dollars an ounce. Both gold and silver have nearly doubled in the last one year. Remember, this is not an isolated stock, where such moves are routine, these two are commodities with one price across the world.
The total stock of silver in the world above the ground is about 200000 tons. You melt all that gold into one massive cube, it will be about 70 feet by 70 feet by 70 feet, smaller than your average office building. Total value: about 27 trillion dollars.
Estimates of silver stocks above the ground vary, no one really knows. It could be anywhere between 800000 tons to 1.6 million tons.
The annual production of gold is about 3000 tons and of silver is about a billion ounces, about eight times the annual production of gold.
The ratio of the price of gold to silver price right now is 4200:57 which is about 75:1.
( All numbers approximate, you can always google for exact numbers).
Gold and silver are likely to outperform in the immediate future. Between the two, silver will do much better.
There are a host of reasons converging to make this happen.
Central Banks have been increasing their gold reserves over the last few years. This is due to increasing global uncertainty, and fears of de-dollarisation. Any alternative to the dollar will likely need gold backing. Once gold runs out, silver is the next choice. They have both been currency for at least five thousand years now. In times of uncertainty, everyone turns to gold.
Apart from being a store of value, which contributes to the precious metal driver, silver is also a valuable commodity with a lot of industrial uses. It is very malleable, ductile, and a great conductor of heat and electricity. Biotech, chips, electronics, weapons, all need silver. Some of the silver that is used is not recyclable, and thus silver actually gets consumed.
Add to this, the new drivers for silver usage. Solar PV cells, electric vehicles, data centers, AI rollout, these are the new users on the block and the demand due to them is exploding.
In the last four or five years, the silver demand due to all factors combined has been greater than the supply. The shortfall over the four or five years is equal to one year's production. As a result stockpiles are at a record low.
Meanwhile, US has declared silver as a "critical commodity", other countries will follow suit. This means they will start creating strategic stockpiles.
Silver producing nations, starting with China, may start putting curbs on its export.
For the last forty years or more, prices of silver have been suppressed due to banks and financial institutions selling short. When that market unwinds, and the chickens come home to roost, it will be equivalent to financial Armageddon. In both gold and silver, the amount of paper in the market is an order of magnitude higher than actual stocks.
It is not easy to increase mining capacity for either of these metals . Their supply is finite, and when it comes to silver most of it is mined as a byproduct while mining other metals like zinc.
What happens when all these factors combine in the market all at once? Supply shortage, no increase in supply sources, explosion of industrial demand, central bank purchases, easy access due to ETFs, fears of de-dollarisation, geopolitical uncertainty, unwinding of the paper trade, sellers facing a short squeeze?
Both gold and silver will go through the roof. The gold silver ratio will drop from 75 to, who knows, could be 30 ( recent history) , 15 ( historically has been true) or even 8 ( geological ratio based on stocks and production).
My prediction is that in the next ten years gold will go to 5x, 20000 dollars an ounce from 4000 levels; and silver will go to 10x, from 50 levels to 500.
Only thing is, it could happen much faster than that.
Accumulate. Buy ETFs. If you are the kind to believe that the worst might happen, buy physical.
