Silver Buying Opportunity

In 2023, global silver production was approximately 26,000 metric tons. During the same period, gold production was around 3,000 metric tons.

So 8.6x more silver is mined annually than gold. Yet gold trades at about 86x the price of silver today ($2,633/oz for gold and $30.60/oz for silver).

What explains this disconnect? The primary differentiator is the fact that central banks buy and hold large quantities of gold. Global central banks and governments hold approximately 36,700 tons, or roughly 17% of all gold ever mined.

It doesn't really seem like that much - just 17%. But that percentage makes a world of difference in markets. Even single-digit moves in supply/demand can dramatically impact hard asset prices. When central banks hold nearly a fifth of global supply and are buying more, that matters greatly.

Gold remains a monetary asset today, and I believe there's a good chance we return to some version of the gold standard in the future.

Silver, on the other hand, has lost its monetary mojo (for now).

Yet historically, both gold and silver were money. Take a look at this infographic which shows the gold/silver ratio at various points in history.

Source: Make Gold Great Again on X

As you can see, the historical ratios were more proportional to the relative scarcity of these precious metals in the ground (roughly 1:8 today).

For much of history, gold was used for large purchases such as real estate, and silver for everyday expenses. Even up until 1964 in the US, silver was an important part of our coinage.

I believe that eventually, silver will also re-emerge as a personal monetary asset. Individual investors will catch on that we're headed for a financial reset.

They will want to put their money into something analog. A hard asset that can't be hacked.

But some people want something with more upside than gold, while still offering the safety of precious metals.

Silver fits the bill beautifully.

Supply/Demand for Silver

Today, demand for silver is once again booming, but not for monetary purposes (yet).

As we can see in the latest Silver Institute report, physical investment demand for silver is currently dropping.

Physical investment is forecast to fall by 15% to a four-year low of 208Moz in 2024. Losses have been concentrating in the US where coin and bar sales are on track for a 40% decline to its lowest level since 2019. This reflects an absence of new crises during 2024-to-date, which has affected precious metal retail investment across the board.

Industrial demand, however, is still soaring, as we discussed in Silver: So Much Bigger Than 2011. In 2024 industrial buying is set to rise 7%, primarily driven by solar panel growth in China.

ETF demand is also rising, reflecting growing investor interest in that area. It's set to rise 8% vs 2023, the first inflow in years. This is a good sign.

Overall silver is running record annual deficits, and this is expected to continue.

When physical silver investment turns the corner, I expect fireworks. With industrial demand so high, it only takes a little growth from investment demand to send the metal much higher.

A Crisis Catalyst

When it comes to silver investment demand, the strongest catalyst is financial or monetary chaos.

Things like:

I am certain that the world won't lack for crises as this decade proceeds. Governments around the globe have reached a tipping point of debt and deficit.

Banks have massive unrealized losses in their fixed-income portfolios, which everyone is essentially ignoring. Interest rates are rising despite Fed rate cuts, exacerbating the losses.

The U.S. is about to dramatically change its foreign trade policies, which is certain to be a disruptive force. In the long run, tariffs will encourage domestic production and raise wages, but in the short term, there will be side effects.

Silver performed remarkably well during the first inflation wave over the past few years. In 2020, silver bottomed out at around $11.60. Today it trades at $30.60, down from a recent high of nearly $35.

The current correction offers a nice buying opportunity, but there's a chance we go lower. If we do, I plan on buying aggressively.