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3 Reasons Why Sliver Prices Continue to Defy Gravity

Last Updated September 23, 2020 2:19 PM
Chinmay Pandya
Last Updated September 23, 2020 2:19 PM
  • Silver is back to trading near multi-year highs.
  • While gold has rallied beyond all-time highs, silver has started to catch up.
  • A massive shortage of physical silver will continue to aid the white metal’s rally.

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 future prices
Silver prices break out to multi-year highs. | Source: Yahoo! Finance 

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.

Silver Is Finally Beginning to Catch up to Gold

The gold-to-silver ratio, which represents silver’s value in gold terms, peaked at 123.34 in March.

Gold to silver ratio.
The gold-to-silver ratio’s staggering decline. | Source: Longtermtrends 

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?

Industrial Demand Has Bounced Back

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. 

Silver will flourish in this scenario because of its use in solar panels  and electric vehicles. 

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.

Supply Remains Weak

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.

Tweet about silver supply shortage.
Silver ETPs struggle to procure silver. | Source: Twitter 

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.