Every West Ham fan knows that 1980 was a significant year. It was the last time we won the FA Cup. Trevor Brooking scored the only goal in a 1-0 victory over Arsenal, and it was a rare moment of joy in an otherwise gruelling journey of crushing disappointment. 2011 was also a significant year, but for very different reasons, as West Ham finished last in the Premier League and got relegated! Anyway, moving on swiftly.
These two years were also significant in the silver market. 1980 and 2011 were the only other times when the silver price has reached the $50/oz level…. until now.
Will this be third time lucky? Can silver consolidate these gains and move higher this time, or just like my dreams will it fade and die?
Last November we wrote an article on how silver was an overlooked market, and you can read the whole article here Silver Bar Blues. Obviously, it is a fabulously well written article, and you should drop everything to read it, but if you are short on time then in summary…
- Silver one of only a small handful of markets whose record highs from the commodity spikes of the 1970s and 1980s have yet to be surpassed.
- Silver, like gold, is a precious metal that offers investors protection during times of economic and political uncertainty as store of value.
- Silver prices had lagged gold prices in the precious metals bull market of the last few years, but year to date they have surpassed gold (silver is up 73% vs gold up 57%)
- Silver is a much smaller market than gold, and as such the prices are super volatile.
- Much of silver’s value is also derived from its industrial demand. Approximately 60% of silver is used in industrial applications, like solar panels and EV cars, and this year the US has classified silver as a ‘critical mineral’.
- Silver demand continues to surge. Silver is second only to oil as one of the most widely used commodities, with more than 10,000 applications worldwide.
- This year will be the fifth consecutive year that the global silver market has recorded a physical deficit, and more importantly, this deficit will persist for the foreseeable future.
- Over 70% of silver currently mined is as a byproduct of mining for gold, copper, and other metals. For the next few years at least, we will have to depend on drawdowns of above-ground stocks to meet the supply deficit.
As I type this, the supply/demand dynamic in the silver market is at extreme levels. The recent spike in demand for silver, combined with a dwindling supply of available bars to trade, has seen the physical market creaking at the seams, with stories of traders loading up planes with silver to fly from New York to London to meet the demand. It is not normal for the futures market (a contract to buy at a set date in the future) to be trading at a such a large discount to the physical market (buying now), as you can see below.
This situation will eventually get resolved (although I would wager there are some pretty worried traders at the big banks at this moment in time), but over the medium-term silver continues to provide us with a ‘heads I win, tails I don’t lose’ trade. It can benefit from economic growth and growing industrial demand, while maintaining a degree of insulation against geopolitical risks and vast debt being accumulated in many countries across the globe.
The increased appetite for gold, silver and cryptocurrencies has become known as the ‘debasement trade’, as these assets are deemed to protect against currency debasement, and given the debt situation for many countries, this trade looks like it has a way to go. The inflation adjusted silver all time high price is over $160/oz, but sadly I think I will probably see silver hit this level before I see West Ham win another cup 😢
