At our investment service The Complete Investor (TCI), we’re highly bullish on gold. But we also think silver is poised to make outsized gains. Indeed, the “white metal” could even pull ahead of its yellow-hued cousin. This makes our favorite silver plays terrific companions to the gold investments that we have been urging you to buy.
Silver fits neatly into investments related to sustainability, the importance of which we will discuss in forthcoming issues of TCI. That’s because silver is an essential component in photovoltaics, by far the most important technology in solar energy.
Today, industrial uses account for about 50% of silver’s demand. Among these industrial uses, the photovoltaics segment is the fastest growing and will be the major source of rising demand for silver. Additional demand will come from other industries as well, because silver is used in virtually all electronic products, from mobile and desktop computers to the vast number of connections needed in the Internet of Things and 5G wireless. But it’s photovoltaics that has the potential to dwarf other needs.
Silver’s Key Role in Renewables
Creating a sustainable world starts with lessening our dependence on fossil fuels by sharply increasing the use of electricity to meet our energy needs. The great virtue of electricity is that it can be generated from renewable sources, of which solar is likely the most scalable. Today electricity supplies less than 20% of the world’s energy needs. That percentage needs to rise. As electricity accounts for a larger share of energy generation, it will ensure that photovoltaics, and therefore demand for silver, moves into the fast lane.
If you think that technology may step in, enabling silver to be used more efficiently so that less of it is required, think again. The gains of so-called “thrifting” already have been made and appear to be approaching limits.
Between 2009 and the present, the amount of silver needed to generate electricity fell by about 80%. Without that drop, it is likely silver would today be trading in triple digits. But nearly 90% of the fall in the amount of silver needed to generate a unit (watt) of electricity came between 2009 and 2016. Since 2016, the pace of reduction in how much silver is needed for photovoltaics has sharply moderated, suggesting we are approaching an absolute minimum.
Calculating potential silver demand from photovoltaics is incredibly complex. Sources I relied on included the International Energy Agency, BP (NYSE: BP), London-based consultancy group Metals Focus (whose yearly analysis is published by the Silver Institute), and the U.S. Geological Survey.
After crunching the numbers and data, my best estimate is that to satisfy demand through 2040 would require nearly 200,000 tons of silver, or about 80% of current silver reserves. That percentage would add an average of 10,000 tons to annual silver consumption. Throw in demand from other uses as well and it seems almost inevitable that silver is headed for a major crunch. A conservative long-term price target for silver would be $200 per ounce.
Physical Metal or Security
Investors who have the space to store physical silver and don’t mind paying markups to dealers and (perhaps) insurance premiums can consider investing in physical silver, such as coins. Others who prefer the ease of trading can consider a security, such as a silver exchange-traded fund (ETF) or stock in a silver miner.
Silver ETFs seek to track the spot price of silver and over time they tend to track silver’s price movement quite closely. They will deduct a small fee for the management of the fund.
An investment in a silver producer offers more leverage than investing in an ETF. For silver producers, a 10% rise in silver prices tends to result in a higher-than-10% increase in the company’s earnings. To be sure, if silver falls, the miner’s earnings will tend to fall by a higher percentage. However, the potential rewards of a precious metals mining stock are quite appealing.
Editor’s Note: At least 15% of your portfolio should be devoted to hedges. As part of your hedges sleeve, about 5% – 10% should be in precious metals, such as gold and silver. In the above article, our colleague Dr. Stephen Leeb has spotlighted the opportunities in silver. But he’s also extremely bullish over gold.
Dr. Leeb prefers gold miners as investments in the yellow metal, because they offer the opportunity for exponential growth due to corporate operating leverage. Through painstaking research, Leeb and his team have pinpointed an under-the-radar gold miner that shines above the rest. This small-cap “rocket stock” is poised to blast off.
AUTHOR…INVESTMENT ADVISER…MONEY MANAGER
Stephen Leeb is a prolific author, investment adviser, and money manager who has been analyzing financial markets for more than 40 years. He is known for his prescience in connecting the dots among hidden or overlooked trends – macroeconomic, scientific, and geopolitical – and accurately describing the investment implications, often going against the conventional wisdom. He is the author of nine books on investing and geopolitical trends including his most recent book, China’s Rise and the New Age of Gold: How Investors Can Profit from a Changing World (2020, McGraw-Hill Education). He is founder and editor of the award-winning investment letter The Complete Investor, published by Capitol Information Group, a Washington, D.C.-based financial publisher. Stephen is chief investment officer of his own wealth management firm based in New York City.