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Visual Capitalist’s Silver Series Part 2: Perfect storm for silver

by Nicholas LePan | posted with permission of Visual Capitalist | February 27, 2020


Visual Capitalist Silver Series Part 2: Perfect storm for silver


In Part 1 of the Silver Series we showed how precious metals can be a safe haven during times of volatility in a debt-laden era.

Part 2 of the Silver Series comes to us from Endeavour Silver TSX:EDR and it outlines some of the key supply and demand indicators that precede a coming gold-silver cycle in which the price of silver could move upwards.

Supply and demand

Silver is produced primarily as a byproduct in the mining of non-precious metals, and there is currently a dwindling supply of silver as a result of low base metal prices.

However, silver is more than just a precious metal and a safe haven investment. Its industrial uses also create a significant demand for silver stocks.

As the production of green technologies such as solar cells and EVs quickly escalates, upward pressure is being placed on the price of silver, indicating the potential start of a new gold-silver cycle in the market.

Investment demand

Just like gold, silver has functioned as a form of money for centuries and its role as a store of value and hedge against monetary inflation endures.

Currency debasement is not new. Governments throughout history have “printed” money while silver’s value has held more constant over time.

In today’s age, average investors do not own physical silver. Rather, they invest in financial instruments that track the performance of the physical commodity itself, such as silver exchange-traded funds (ETFs).

Until recently, ETF investment in precious metals has been relatively flat, but there has been a surge in the price of silver. Meanwhile, demand for silver-backed financial products has increased the demand for physical silver and could continue to do so.

Industrial demand

Silver is also helping power the green revolution.

The precious metal is the best natural conductor of electricity and heat, and it plays an important role in the production of solar-powered energy. A silver paste is used in photovoltaic solar cells which collects electrons and creates electricity. Silver then helps conduct the electricity out of the cell. Without silver, solar cells would not be as efficient.

As investments and the green revolution demand more and more silver, where is the metal coming from?

A perfect storm for silver: Supply crunch

The bulk of silver production comes as a byproduct of other metal mines, such as zinc, copper or gold mines.

Since silver is not the primary metal emerging from some of these mines, it faces supply crunches when other metal prices are low.

Silver supply is falling for three reasons:

  • Declining mine production due to low base metal prices

  • Declining silver mine capacity

  • Declining reserves of silver

The demand for silver is rising and the few companies that produce silver could shine.

See Part 1 of the Silver Series.

Posted with permission of Visual Capitalist.

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