Silver: Double-Digit Gains This Year, Then “Tulip Mania”
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If you want the upside potential of Bitcoin with minimal downside risk, then silver may well be your answer.
The precious metal has offered not just centuries, but millennia of intrinsic monetary and industrial value.
And despite that inherent worth, silver sometimes goes through frenzied buying manias, not unlike Bitcoin’s 2017 run-up.
In my view, that same kind of “Tulip Mania” lies ahead for silver investors, only bigger. And while that may not happen in 2018, it almost surely will in the next few years.
So let me show you why I think so and, what’s more, how you can position yourself for maximum profit…
Silver’s Demand Explosion Is Quite Unlike Gold
Silver’s particular status as both an industrial and a monetary metal is going to help drive exploding demand.
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- Unlike gold, about 50% of annual silver production gets consumed by various industries, never to be seen again.
- High tech, consumer tech, and the whole green tech trend are pushing up consumption. Smart TVs, computers, tablets, smartphones, smart energy grids, electric vehicles, and solar panels all need silver.
- About 70% of mined silver is what’s called “byproduct.” That means it’s produced only as a result of mining other metals like gold, lead, zinc, and copper. The remaining 30% comes from mines which primarily produce silver itself.
Thanks to a multi-year commodity bear market, byproduct silver is in low supply. That’s starting to change, though only slowly, as base metals prices have been rising since early 2016.
But 2017 has been a challenging year for silver production. According to the SRSrocco Report, two-thirds of primary silver miners have seen their production fall this year. And World Metal Statistics reported that silver production has been adversely affected in some key producing nations in the first eight months of 2017: down 1% in Peru, 2% in Mexico, 19% in Australia, and 20% in Chile.
And Steve St. Angelo of the SRSrocco Report believes “global silver production will take a big hit this year due to several factors, including falling ore grades, mine closures, and strikes at various projects.”
These are all very bullish fundamental indicators for the metal itself.
Silver stock conditions will give us the full picture…
I’m Calling It: The Bottom Is In
There are two aspects relating to silver stocks that point to a likely bottom for both silver miners as well as silver itself.
The most straightforward proxy for silver stocks is the Global X Silver Miners ETF (NYSE: SIL).
If we examine its price action, especially since late October, the sector looks very much like it’s in the process of bottoming.
The SIL ETF has been trending downward all year, but in early November it broke below support, around $32.
Also, check out the huge jump in volume late in November and into early December. This looks very much like a capitulation scenario.
One of my favorite sector indicators is the silver-stocks-to-silver ratio. I track this using SIL versus the silver price. This ratio tells us if silver stocks are cheap or expensive relative to silver.
What it’s telling me right now is remarkable.
Despite the strong sell-off in silver stocks, they’ve actually held up well compared to silver itself. And the recent bounce back has been stellar.
If, as I believe is the case, silver stocks have bottomed before silver, the stocks may now lead the metal higher. And that in turn could mean a new rally is about to start for silver.
Past Is All Prologue for Silver’s Coming Run
A look at silver’s last major run-up is revealing.
Between August 2010 and April 2011, silver prices shot up from $18 all the way to $49, generating tremendous gains of 272% in a span of just eight short months.
And between January 1976 and January 1980, the second half of that secular silver bull, silver was up 1,000%, from $4 to $40.
That shows you just how volatile silver can be and what kind of gains it can produce in a short time.
“The ultimate asset bubble is gold,” according to George Soros.
Perhaps Soros should have called silver the ultimate asset bubble.
Although those kinds of gains are surely in silver’s future, in my view, here’s what looks more likely for the grey metal in the near term.
Based on all the drivers I’ve outlined above, I think silver is likely to regain its 2017 high of $20.50 in the first half of 2018.
As for the back end of next year, I’d expect to see silver make it into the $22 to $24 range. At the upper end, that’s around a 50% gain from where we’re sitting this week.
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