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Silver Is Sprinting Past Gold

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Silver Is Sprinting Past Gold

The Olympics are coming to a close, and at the same moment silver is sprinting far ahead of gold. In fact, it's about to lap its precious metal cousin around the track! When you compare year-to-date returns, spot silver has nearly outpaced gold 2:1—+43% YTD versus a still impressive +27.5% YTD for the gold price.

There are several reasons for this. Silver is traditionally buoyed by industrial demand more so than gold, which relies more upon investment and jewelry purposes. This proved to have a bearish connotation of the argent metal earlier in the year as China teetered on the edge of crisis with its gradual slowdown of expansion and global industry seemed to be headed for a freeze. Industrial uses have been a key to its turnaround of late, interestingly enough.

For many silver market insiders, like miner Pan American Silver (PAAS) CEO Michael Steinmann, the bullish prospects for silver from industry are thanks in large part to the emergence of new technologies.

pan-american-silver-bar

Looking Toward the Future

The shift to newer, more energy-efficient technologies was at first a drag on silver demand. Traditional sources of silver use like photography and film production were losing out in this transition. However, the need for silver in high-tech electronics and "green" technologies has helped make up the lost ground. As these technologies become more widespread, it would appear the silver market is poised to rise right along them.

Chief among these emergent industries are the clean-energy and electronics sectors. One only imagines these two areas of the economy will experience growing demand going forward. This is especially true with China and India signing on to international agreements for clean energy initiatives for the first time in history.

Projected orders of solar panels, which use silver in their production, by the two Asian countries over the next five years are already astronomical. Right now, roughly 10% of total silver production is gobbled up by solar panel demand.

According to the CEO Steinmann:

"The future world will be [filled with] electric cars, and electric cars will need to find sustainable ways to produce that electricity."

He added, "Every phone, every screen, every light switch contains silver."

With the help of industrial demand—from solar and other clean energy technologies to various electronics, like TV screens and smartphones—Steinmann and others are confident that overall silver demand is primed to grow with the economy rather than sink as industries transforms. Global demand is currently estimated at abut 1 billion troy ounces annually.

PAAS YTD price chart. Source: Google Finance PAAS YTD price chart. Source: Google Finance

Early this year, silver prices were slumping relative to gold due to uncertainty and safe haven demand driving the precious metals markets (rather than industry). Yet silver proved its reputation for greater volatility and bigger returns than gold during a bull market. It now sprints far ahead of the field.

Silver miners like Steinmann's Pan American have risen right along with the tide. PAAS, which trades on the Nasdaq, has returned over 220% so far this year.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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