With gold at all-time highs, silver remains cheap

( Kitco, Fri. Sep. 27th, 2024) – While the gold price has rallied from a 13-year cup & handle breakout at $2100 in March to post 38 seperate all-time daily closing highs, the recent rise in silver has not garnered much attention. Silver, which serves as both a safe-haven investment and a key material in industrial applications, has rallied more than 36% so far this year to outpace the 30% gain in gold.

Furthermore, although gold has recently made the headlines, silver has quietly surged from just under $20 an ounce last October to a 12-year high of over $32 an ounce this week – outperforming gold with a stunning gain of 65%, within the same 11-month period.

With the silver price benefitting from this historic gold rally and a 50-basis point Fed rate cut, the bulk of the demand for silver has been driven by the industrial sector. Silver’s usage in photovoltaic products like solar panels has nearly doubled over the prior year.

Back in January, the Silver Institute forecasted that global silver demand will reach a near-record 1.2 billion ounces in 2024, up 1% from last year. This growth is primarily fueled by industrial applications, particularly in the booming solar energy sector. We are looking at the fourth consecutive year of a structural market deficit in silver. The deficit is expected to widen by 17%, reaching 215.3 million ounces.

The rally in industrial metals following China’s broad stimulus package could be another key driver behind the next up-leg in the grey metal. China’s central bank unveiled its biggest stimulus this week since the pandemic and is expected cut its seven-day reverse repo rate, but analysts warned more fiscal help was vital to hit these goals.

“Silver is going to continue to rally over the coming quarters because of the consecutive rate cuts and as China’s stimulus could continue for some time,” said Amelia Xiao Fu, head of commodity markets at BOCI, adding that she sees the price moving towards $37 level.

The silver price surge above $32 this week can also be attributed to strong demand during India’s festive and wedding season, a period typically marked by increased purchases of precious metals.

The positive trend is likely to continue as a bountiful monsoon this year has brightened crop prospects, potentially boosting disposable incomes of farmers — a major consuming group.

Silver imports to India jumped from $158 million in August 2023 to $1.33 billion in August 2024. A key factor driving this surge has been the Indian government’s decision to reduce import duties on gold and silver from 15% to 6%, boosted demand.

With over 3.5 million weddings expected this year, demand for both gold and silver jewelry is projected to rise by 25%, adding more upward pressure on prices.

Experts like Rajesh Rokde predict further price increases due to heightened consumer interest. Rokde, a prominent jeweler, predicts that “silver prices could continue to rise as demand remains strong, particularly given the reduced import costs.”

With Silver Futures looking to post a 12-year high monthly/quarterly close above $32 next Monday, the last time this feat was accomplished during a major up-leg was in Q4 2010. The metal then went on to trade at its all-time high of $50 an ounce within the space of 100 days. If this is a leading barometer for predicting the future performance of silver prices, then we could see silver at $50 by Q1 2025.

Yet, the gold-silver ratio remains historically high at 84 to 1, indicating silver remains deeply undervalued compared to gold. Since silver has outperformed gold in percentage terms during previous precious metals bull markets, it would not be surprising to see the “poor man’s gold” rise substantially in the coming final quarter of 2024 as the Fed is set to continue lowering interest rates.

With silver being mostly ignored by investors for the past several years, the silver equity complex may be the best trade right now. Although silver related large cap miner and royalty streaming stocks have experienced outsized gains during the recent silver surge, many quality silver juniors are still presenting low-risk entry points.

With the silver price on the verge of a major breakout, the Junior Miner Junky (JMJ) real-money portfolio has been accumulating large positions in a basket of 12 small-cap junior growth-oriented producers and developer/explorers with plenty of leverage to the silver price. Some have already begun to catch-up with the mining sector, while others with optionality leverage have yet to breakout from strong accumulative bases.

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com