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Silver Investment Demand Will Power Silver To A New All-Time High

Summary

  • Silver in percentage terms will outperform gold in this precious metal bull market.
  • Investors are in an acquisitive mood as the demand for physical silver takes off.
  • Demand via the silver-backed exchange-traded products (ETPs) has just about tripled in the first nine months of this year.
  • Avoid the day to day and even the week to week oscillations in the silver market as this is no more than a distraction from the emerging bull market in the precious metals space.

Introduction

We have long held the view that silver in percentage terms will outperform gold in this precious metals bull market. On the 10th October 2020, The Silver Institute provided an interesting insight into the current demand for silver via silver-backed exchange-traded products (ETPs). Today, we will take a quick look at the data and try to ascertain where next for silver prices.

Increase in demand for silver via the ETPs

The chart below clearly shows that investors are in an acquisitive mood as the demand for these products has just about tripled in the first nine months of this year when compared to the same period last year and now stands at 297 million ounces. It is debatable as to whether silver is being accumulated in this manner as a poor man’s safe haven purchase or as a speculative trade on the assertion that silver will outperform gold. Either way it does suggest that there is strong support for physical silver, and should this trend continue, then one would expect to see higher prices for silver and a possible new all-time high in the near future.

 

The 12-Month Chart for Silver

This chart below depicts silver’s rise from the $17.00/Oz a year ago to an overbought position of close to $30.00/Oz in August 2020. Since then, silver has corrected to a more neutral position of around $24.00/oz. The technical indicators of the RSI, STO and the MACD have now unwound from their lofty positions which suggests to me that there is room for silver to resume its trek north.

 

The Gold/Silver Ratio chart

The ratio below depicts how gold and silver were out of step when it reached a high of 130:1; however, the renewed interest in silver this year has seen the gap close to around 80:1. Our initial target is 60:1, and so with gold currently trading at $1,906.00/Oz, this indicates that silver needs to trade at $31.70 before our target is met.

Some of our peers are of the mind that this ratio could get down to 15:1, which, if it is achieved, would put silver at $127.00/Oz. This ratio is not an impossibility and it is something I intend to review once our initial target is achieved.