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Updated 03:18 17/09/19

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Could the silver price be about to surge?


Michael Pinson, News Editor
16 Aug 2019, 2:50 p.m.

A host of global economic uncertainties recently have seen investors turning to safe-haven assets, driving the price of gold to register several new all-time highs in Sterling.

Gold is not the only precious metal to rally however. Silver has been climbing too, and has the potential to make further gains. In the past three months, the price for an ounce of silver has increased 28.66%. In May, an ounce of silver cost £11.27, but as of August 16th it has risen to £14.12 per ounce. The past three months has seen global confidence shaken considerably, but closer to home a new prime minister in the UK has increased the chance of a no-deal Brexit significantly, driving the Pound down 7.85% in the same three months.

The US-China trade war has escalated further, with new tariffs being introduced in September and December. Recession fears have also been growing steadily; the UK, Germany, Sweden and Hong Kong all saw their economies shrink in Q2, leaving them one bad quarter away from recession. News this week that yield curves inverted* in both the US and UK has only increased beliefs that recession is looming over the world’s economies.

* the difference in profits yielded between a short term bond, like a two-year deal, and a long-term bond of 10 years or more.

Figures from The Silver Institute show that demand for silver in 2018 was up 3.52% from 2017, with a demand rising from 998.4 to 1033.5 (million ounces). This was partially driven by the investment market – silver coins and bars saw a 20.48% increase in demand in the same period. Figures from 2019 so far are encouraging, with the US Mint for example suspending sales of their silver Eagle coins due to a 50% increase in demand.

One of the largest drivers for the silver price however is photovoltaic cells in solar panels. Silver demand in the solar panel industry has risen three of the past four years, and is expected to set new records in 2019. With concerns rising over the impact fossil fuels are having on the environment, many countries are setting lofty targets regarding clean energy. With solar energy set to experience further growth in the coming years, silver demand will only grow from this industry - though whether the United States will be onboard under the current administration is still to be seen.

Conversely, silver supply has decreased in four of the past five years. From 2017 to 2018, silver supply dropped 2.74%; from 1032.6 to 1004.3 (million ounces). This is the third consecutive annual drop, and means that 2018 saw demand outstrip supply. By the most basic of business principles, this can only be encouraging for silver prices. If trends continue, and demand grows further while supply drops, then prices could increase independently of any of the economic drivers mentioned above.

The silver price has been increasing recently but, if past trends are anything to go by, there could be room for plenty more growth. If we look at the past 15 years, when silver prices rise, they tend to rise significantly.
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The chart above shows the silver price for the past 15 years. The red lines represent five of silver’s major breakouts, as well as the current rally. Each line corresponds to the following movements:

  • Sept 2005: £3.78 – April 2006: £7.99 (111.38%)
  • August 2007: £5.86 – March 2008: £10.04 (71.33%)
  • October 2008: £5.80 – February 2009: £9.95 (71.55%)
  • August 2010: £11.53 – April 2011: £29.26 (153.77%)
  • December 2015: £9.14 – July 2016: £15.36 (68.05%)

All of the above price rises took 6-7 months, and resulted in significant growth. With the past three months seeing silver prices rise 28.66%, we could be nearing the middle of a similar surge which could see silver hit £20 per ounce. Prices could climb even higher if the looming recessions result in a financial crisis similar to that of the late 2000s, but that's speculation to be tackled another day.

Most telling perhaps is that, despite the fact that gold is currently at all-time highs in Sterling, silver is not quite halfway to its 2011 peak of £29.26 per ounce. The Gold-Silver ratio has been considered high for years now and, despite a small drop in the past two months, is still sitting at 88.15. To achieve even a modest drop to a ratio of 70 would require silver to jump up to £17.77 per ounce.

When silver reached its peak in 2011, the ratio came down to 32, which with gold at its current high price would equate to a silver price of £38.88 per ounce - a new Sterling record.

No one can say for certain what will happen with precious metal prices, but the stage could be set for a silver surge in the next few years.

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