Silver prices continue their gravity-defying run because of three underlying forces in the commodity sector.
After breaking through multi-year highs with ease, silver’s dizzying rally has gone parabolic. At the time of writing, the grey metal’s September futures contract is at $29.11 an ounce, up 5.8%.
Silver’s gravity-defying rally has been nothing short of spectacular.
There is still a long way to go for the grey metal. These three key reasons justify silver’s rally after years of consolidation.
The gold-to-silver ratio, which represents silver’s value in gold terms, peaked at 123.34 in March.
The ratio meant that an investor could buy 123.34 ounces of silver with a mere ounce of gold. Usually, such a competitive exchange rate for silver attracts demand from bullion investors. Unsurprisingly, it did.
The ratio pulled back a staggering 43% in five months to 72, the lowest since April 2017. This pullback coincided with a rally in silver prices.
Video: Gold-to-silver ratio heading to 15:1?
Silver has several industrial uses. While demand declined during the pandemic-induced shutdowns, it has started to bounce back.
Not only has the returning demand boosted silver prices, but silver’s demand forecast has fired up the bulls. U.S. presidential candidate Joe Biden’s policy outline played a role in that regard.
Biden intends to implement policies that would lead to net-zero emissions by 2050. This will drive up the silver demand drastically in the medium-term, according to analysts at the Bank of America.
A 10% jump in investor demand in the first half of 2020, coupled with returning and ever-increasing industrial demand, put silver prices on track for further gains.
As silver demand returns, supply has remained a problem.
Silver’s strongest month since December 1979 was driven in part by a record shortage of physical silver, which led silver ETPs to buy up the precious commodity.
Peru, the world’s biggest silver-producing country, is languishing in the battle against COVID-19. As a result, silver mines remain under siege.
Amid supply disruptions and soaring demand, it is no surprise that silver prices have taken off. As U.S. dollar debasement continues, precious metals could very likely resume their gravity-defying rallies.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.
Last modified: September 23, 2020 2:19 PM