This
has been a tumultuous year for investors, with Brexit, negative bond yields, a
global trade war, an oil price crash, and, of course, a worldwide pandemic
that’s ushered in what’s expected to be the worst recession since the Great
Depression. The question, then, is whether our money can be safely invested
anywhere.
Fortunately,
many experts are bullish about precious metals. Although the price of gold has
risen roughly $400 per ounce in the past year, some analysts suggest that
silver may be the better buy in the medium- and long-term.
How Has Silver Fared So Far In 2020?
Virtually
every asset price fell in March due to the “sell what you can” mentality many
investors held during this frantic period of uncertainty driven by the
coronavirus and an oil price war. However, allocating a portion of your
portfolio to silver bullion would have softened the blow caused by the
coronavirus sell-off.
Is Silver Susceptible to Price Suppression?
It’s
worth noting neither the U.S. federal government nor the Federal Reserve system
can assert significant control over the price of silver. In 2019, the U.S.
accounted for an estimated 3.6% of global silver production (980 metric tons),
compared to Mexico and Peru, which produced 6,300 and 3,800 metric tons,
respectively. Therefore, the price of silver is ultimately beholden to global market
forces rather than domestic price manipulation.
Silver and Industry:
Silver
is a metal with many industrial applications. In 2018, silver was heavily
utilized for industrial manufacturing — in particular, for use in photovoltaic
solar panels, brazing alloys and solders, electronics, and ethylene oxide. This
figure doesn’t include silver used in the production of jewelry, which required
another 200 million-plus ounces that year.
What’s
particularly noteworthy about silver’s industrial usage is that it’s prominent
in the production of solar panels and batteries, which bodes well for the
metal’s long-term price. The worldwide market for solar energy was expected to
rise in value from $52 billion in 2018 to $223 billion by 2026.
Regarding
supply, a January 2020 report by Scotiabank determined the global supply of
silver is “fundamentally oversupplied” but remains attractive to investors as a
gold proxy. The authors note that silver can play an important role as a
currency hedge, and upside growth is expected due to modest increased
industrial demand. Overall, the report is mixed about silver prices for 2020,
estimating possible outcomes of $15-$23 per ounce, depending on gold
performance and demand drivers. The authors estimated that $17.50-$21 per ounce
is the fair, market-aligned range for silver in the year ahead.
The Takeaway: A Worthwhile Hold but Not Without Risk:
The
consensus among market watchers, researchers, and precious metals experts are
that the long-term forecast for silver is positive. Although no asset is
without downside risk, the case for silver is supported by heavy industrial use
as well as its strategic importance as a currency hedge during times of
uncertainty. However, the strength of the dollar will play an important role in
silver’s performance.
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