In the title of this article I mention the best of both worlds, meaning that silver enjoys growing demand from two major areas, industrial & investment. By contrast, gold is much more an investment & store of value instrument. Demand for silver is rising faster on the industrial side.
When thinking about precious metals, most of the focus is on gold, yet when gold rallies silver often rallies harder. That’s because between rallies silver, (as measured by the silver:gold ratio), oftentimes underperforms gold. Currently it takes 87.4 ounces of silver to buy 1 ounce of gold.
To find out more about supply/demand, industrial uses/investment uses, and other key considerations I turned to Chen Lin & Peter Kraugh, two notable silver commentators, albeit consistently bullish. I think it’s fair to call them silver bugs.
This article focuses on bullish arguments for investing in silver. I’m only presenting one side because I share Chen’s & Peter’s favorable outlooks and I think many commodities will shine in the coming years.
If readers agree that the future is bright for silver, investing in silver miners makes a lot of sense. Not just any silver player, but a producer who directly benefits from increases in the silver price.
And, if we’re in the early stages of a bull market in precious metals it might make sense to reach for higher reward with higher risk. A great way to do that is with Guanajuato Silver (TSX-v: GSVR) / (OTCQX: GSVRF). Guanajuato is the fastest growing silver producer in Mexico.
From Guanajuato Silver corp. presentation…
It expects to produce 4.5+ million silver equiv. ounces in 2023, with a long-term goal of 3-4x that amount through acquisitions of public & private companies & assets in several states across central Mexico.
The all-Mexican in-country team has proven to be experts in growth through acquisition and integrating newly acquired assets.
With multiple mines & mills forming a hub & spoke configuration in Guanajuato, and the potential to replicate that model in the nearby state of Durango, Guanajuato is poised to continue rapid growth.
Guanajuato is growing much faster than most peers, but is trading at more than a 50% discount to better known producers like Endeavour Silver & Mag Silver.
With that shameless plug out of the way, please continue reading about the outlook for silver according to Chen Lin & Peter Kraugh.
From recent Chen Lin presentation…
Please describe the current silver market in terms of industrial vs. investment & silver as a by-product vs. primary silver production, etc.
[Peter Kraugh] — Industrial demand is very important, representing ~55% of overall demand, with the balance being investment, jewelry & silverware. Over 75% of mined silver is a byproduct of mining gold, copper, lead & zinc. Most investors don’t realize this crucial point.
It means silver is not a priority for most poly-metallic mines, even though they sell it to offset production costs on the primary metals. When the silver price rises, these mines don’t necessarily increase production.
Therefore, silver supply is inelastic, which can create an upward spiral of higher & higher prices as demand increases.
If the silver price were to soar, to what extent can other metals be substituted for silver in industrial purposes?
[Chen Lin] — Currently there are technologies to replace silver with copper in solar panels. In particular, in the HJT panel, where the temperature to produce the panel is low, it’s possible to almost eliminate the silver completely.
From recent presentation from Peter Kraugh…
However, the technology is still in the lab and it will be several years before it even makes it out of the lab. Manufacturers have been trying to replace silver with copper for decades, so far it has not been successful.
Please talk about the supply/demand of silver, how secure is the supply side of the equation?
[Peter Kraugh] — Good question, this is crucial for investors to understand. Total demand was up 17% to 1.24B ounces last year, while supply was up 957M ounces, a supply deficit of 253M ounces.
That’s an astounding 20% deficit. Recycling is significant, representing ~18% of total supply, with 82% coming from mining.
Modest growth in both mine supply & recycling are possible, but I think mine supply will be very challenged. Disruptions are becoming more common. For example, Peru has seen its production drop dramatically this year as protests stall mining operations.
From Epstein Research [ER]…
Mexico (the world’s largest producer by far) along with Peru (#2), have both seen mine supply falling over the last 5 years.
How is the silver market going to change over the next 10 years?
[Chen Lin] — There’s no doubt in my mind that silver will be in short supply for a long time due to its use in solar panels. Some suggest that silver content per panel is in decline, but even so, the growth in the number of panels far outpaces lower concentrations. And, certain new technologies use more silver.
[Peter Kraugh] — Silver is becoming an increasingly industrial metal, and it’s difficult if not impossible to substitute for silver. It’s the most reflective & most conductive of all metals, making it the ideal solution in many cases.
The single largest industrial use for silver is in solar panels, which currently consume 12% of the world’s annual silver production. The International Energy Agency (IEA) forecasts that global electricity from solar will be up 8.5 times by 2030.
By my estimates, that could require the entire annual silver supply in just the next 8 years. In addition, the next solar technology requires up to 50% more silver.
Do you have a view on the silver:gold ratio, now about 88:1? Is it a useful metric?
[Peter Kraugh] — Yes, I believe it is useful. Over the last 20 years the ratio has averaged about 55-60 to 1. In my view, levels above 80 to 1 signal that silver is particularly cheap versus gold. So, 87 to 1 is very bullish for silver.
A great time to invest in silver tends to be when that ratio is falling. The ratio bottomed around 15 to 1 when silver peaked in 1980, and hit ~30 when silver peaked in 2011.
[Chen Lin] — I believe the silver:gold ratio could revert back to the historical 10 or 20 to 1 as I’ve explained in my presentations. When a silver shortage occurs due to solar panel demand, I see the ratio dropping very significantly from over 85 to 1. currently.
End of interview questions…
I would like to thank Chen Lin & Peter Kraugh for their contributions to this article. Readers are encouraged to take a closer look at their videos and consider fast growing precious metals producers like Guanajuato Silver (TSX-v: GSVR) / (OTCQB: GSVRF).
Disclosures / disclaimers: Peter Epstein of Epstein Research [ER] has no prior or existing relationship with Peter Kraugh or Chen Lin. The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by ER about Guanajuato Silver, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Guanajuato Silver are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.
At the time this article was posted, Peter Epstein owned stock in Guanajuato Silver and the Company was a recent (but not current advertiser) on [ER]. Mr, Epstein should be considered biased in favor of Guanajuato Silver.
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