The stage has been set for 2020 to be the year for precious metals to make a big bull run. With the potential for conflict in the Middle East, jittery stock markets, and a Federal Reserve that’s engaging in more monetary easing, this year should see increased demand for gold and silver.
Many investors remember the great precious metals bull run that ensued after the financial crisis, with gold pushing to $1,900 and silver pushing to nearly $50 an ounce. While gold is still moving towards those all-time highs, silver has been languishing. But 2020 could be the year in which that changes.
Unlike gold, whose industrial uses are largely confined to electronics, silver has numerous industrial uses. And the increasing industrial demand for silver is just one reason the silver price is poised to take off.
1. Demand for Solar Cells Will Increase
Solar electricity is becoming more and more popular around the world, from houses to industrial plants to huge solar farms in the middle of the desert. In California, all new houses are required to have solar panels installed. The metal that makes those solar panels function? Silver.
Silver is the key metal in solar panels that enables them to function. And with increasing demand for solar panels, demand for silver will increase too. Over the next fifteen years, production of solar electricity is expected to increase at least sixfold. And even though researchers are hard at work trying to produce solar panels that use only half the silver, that still means triple the demand for silver.
Factor in increasing investment demand during the next fifteen years too, and you have a recipe for a huge surge in the silver price.
2. Silver – The Most Undervalued Precious Metal
Many silver investors look at the silver to gold ratio to figure out which metal to invest in. In recent years the normal silver to gold ratio has been around 50 to 1, that is, it costs as much to buy 50 ounces of silver as it does to buy one ounce of gold.
Currently the silver to gold ratio is about 87 to 1, meaning that silver is incredibly undervalued. According to the 50 to 1 ratio, silver should really be about $31 an ounce today. When silver and gold finally take off during the next recession, expect that 50 to 1 ratio to reassert itself, and for silver to see a massive increase in price.
3. Silver Supply Is Dwindling
Total estimated silver reserves today are between 550,000 and 600,000 tonnes. While that may sounds like a lot, that’s less than 20 years worth of silver supply at current levels of demand. And with silver demand set to increase in the coming years, that could even mean less than a decade of silver mining remaining. Since recycling of above-ground silver isn’t sufficient to supply industrial and investment demand, the silver price will have to rise as a result of that supply shortage.
There are numerous other reasons to invest in silver, but this trifecta of reasons should give any investor a good feeling about the future of silver. Having long operated in gold’s shadow, this could be the year that silver breaks out and outshines its more expensive stablemate.