Few metals have teased investors with as many false starts and dashed hopes over the past decade as silver. Yet the current landscape suggests that silver might finally be poised to reclaim its shine. We believe there is a compelling bullish case for the white metal, with its prospects looking more promising than they have in years.
While gold has enjoyed a sustained upward trajectory, recently reaching a new all-time high, silver has lagged behind. Gold’s rise has been driven by global political and fiscal challenges, concerns over inflation versus growth, geopolitical tensions, and questions about the future role of the US Dollar. With gold approaching $2,500, a medium-term target, silver must prove its own mettle.
Understanding silver’s dual role
Silver is a multifaceted metal, straddling two distinct roles: as a precious metal, often referred to as “poor man’s gold,” and as an industrial metal. Some would even argue that silver is a critical industrial commodity.
What is the demand for silver like?
Historically, silver has served various purposes, from being used in coins as early as 650 BC by the Persians to its use in jewellery throughout history. Later, silver became a staple in tableware and cutlery, thanks in part to its unique antiseptic properties, which can kill bacteria, fungi, and certain viruses. This is why silver was historically used by the privileged class in cutlery and, even today, in wound care and odour reduction in clothing.
In modern times, silver has increasingly become integral to the electrical world. With the highest thermal and electrical conductivity of all metals, silver’s commercial use has been on the rise, a trend that shows no signs of slowing down. The demand for silver is expected to accelerate, driven primarily by its use in electronics and, most notably, in photovoltaic (PV) solar panels, a potential game-changer.
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The Silver Institute predicts that industrial demand will consume the majority of silver supply in the coming years, leaving little for jewellery and investment. These factors suggest a bullish long-term outlook for silver prices.
However, the above-ground availability of silver remains an unknown variable, complicating the supply picture. For example, uranium experienced a 10-year deficit, yet an unexpected 1 billion pounds of uranium still entered the market after the Fukushima disaster in 2011, causing prices to plummet. Silver may face similar unpredictable supply dynamics.
Nonetheless, with the ongoing growth in current PV technology, demand for silver appears robust and is rising. Eventually, supply constraints may necessitate significantly higher prices.
Silver production: the supply side
Today, silver is primarily mined as a byproduct of gold, copper, and zinc-lead mining. This, with a limited number of primary silver resources presents a challenge in modelling its supply. If prices for gold, copper, or zinc rise significantly, it leads to increased production of these metals, inadvertently boosting silver supply without a corresponding increase in silver demand.
For more aggressive investors, it’s worth noting that silver has a history of volatility, also without the Hunt brothers cornering the market. Silver mining stocks exhibit even greater price swings and torque. Silver sometimes behaves like gold, other times like copper, and it maintains a positive correlation and positive beta to liquidity and the general stock market, especially the silver mining stocks.
Timing: my tactical approach
As is customary in our outlooks, we conclude with a technical analysis. This chart supports our bullish stance on silver, and recent dynamics indicate the party could be ready to go wild!
The above 5-year spot silver chart, based on monthly observations, shows a new peak of $32.51 in the spring, its first since 2011, and after a 4-year compression. The subsequent correction down to $26.45 on August 8th aligns with both the 12-month EMA and the 50% retracement level at $26.60, indicating a high-probability bullish setup.
In the short term, silver needs to close above $29.22—the top from late Friday, August 2nd, to confirm its upward resolution. However, this bullish outlook would be invalidated if silver falls below $27.18.
Both short- and long-term oscillators, moving averages, and price structures supports an upward trend. The nearly perfect 50% correction to just below $26.60, combined with underlying structures, indicates a high probability of a positive upward movement, possibly in the near future, even though August is normally not the month for dynamic up-moves. But current structures look to serve as the final springboard needed for a sustained rally.
There are numerous upside targets to consider. The media often discusses $50 and even $100 per ounce of silver. The $50 level is particularly significant, as it represents the previous dual all-time high and therefore holds structural, as well as mathematical, significance. However, before you get your hopes up for these lofty levels, it’s crucial for silver prices to surpass the recent high of $32.51 and the also first key target at $36, where risk adjustment would be in place. Beyond $36, the higher targets become relevant, not before.
Should silver fall below $27.18, it would signal yet another false start. A drop below $25.91 would invalidate this longer-term positive interpretation. Currently, our short- and long-term signals are strongly bullish, but vigilance is essential. If the market unfolds as anticipated, consider scaling in on upward breaks and during price corrections in what could be a continued stair-step upward trend.
Henrik Mikkelsen is a Strategist, Investment Advisor and Business Developer with Iridis AG, an investment management and corporate advisory firm in Zug, Switzerland. Henrik has more than 30 years of experience from investment banking and commodity trading, running strategies for clients and himself, as well as writing about markets and giving lectures on technical analysis and risk management.
