There’s no disputing that both gold and silver posted impressive performances in 2020. As financial markets spent the balance of the year working to recover from the springtime pandemic shellacking, precious metals marched to the beat of their own drummer and climbed solidly higher.
The drummer, in this case, appears to have been both the highly accommodative monetary policy and spendthrift fiscal policy deemed essential to rescuing an economy quickly and mercilessly rocked by COVID. While the sight of such significant financial lifelines eventually prompted markets to strengthen, as well, the profound effect that loose-money economic policies can have on perceived safe havens such as gold and silver became apparent in very short order.
On March 23, 2020, the Federal Reserve announced there effectively would be no limit to the measures the central bank could take to help right the nation’s economic ship. And in the subsequent months, the federal government racked up record deficits. These developments seemed to be received by gold and silver as high-octane fuel. For the year, gold rose roughly 25%. And as impressive as that is, silver proved to be an even bigger story, ending last year nearly 50% higher from where it started.
And the good times for silver in this cycle may be just beginning. As a precious metal, silver has shown a tendency to respond favorably to the kind of monetary and spending regimes that engender inflation fears. It’s likely we’ll see more from those regimes in the years ahead as the Biden administration moves forward with an array of ambitious spending priorities.
But there’s something else. Among metals, silver boasts the highest conductivity of heat and electricity, making it an essential raw material to a wide variety of industries. This property suggests silver is poised to thrive not only from the anticipated general economic recovery, but from the strong emphasis expected to be placed on green energy technologies going forward. In fact, some analysts are predicting big things from silver as much from its value to the green energy industry as from its utility as a potential hedge against dovish monetary and fiscal policies.
Electric Vehicles, Solar Panels and 5G Could Spur Huge Increase in Silver Demand
It’s no longer news that the global community has made compelling moral imperatives of climate change and the green energy technologies designed to combat it. For the purposes of this article, I have no political opinion on the matter. As far as that goes, thoughtful, earnest people on both sides of the issue will agree to disagree.
My interest here is on the potential implications of this priority for precious metals – and, more specifically, silver. As I mentioned in the previous section, silver’s unrivaled thermal and electrical conductivity suggests the possibility there could be great demand for the metal as an industrial raw material as the world community increasingly turns to green energy in the years ahead. And that increased demand potentially could result in significantly higher silver prices in the foreseeable future.
You may already be aware that President Biden has made a $2 trillion commitment to climate change and green energy, one that will be expressed, in part, through the promotion of clean technology, renewable energy and adoption of electric vehicles (EVs). Biden’s effort is, of course, just one element of the much-bigger global climate change agenda. Bloomberg recently cited a Bank of America estimate “that the potential market capitalization for companies tackling climate to be about 6 trillion dollars across things like renewables, electric vehicles, and environmental, social and governance.”
For her part, analyst and portfolio manager Maria Smirnova of Sprott Asset Management expects three “green” industries, in particular, to energize silver in the coming years: electric vehicles, solar panels and 5G cellular technology.
Silver already is used extensively in automobiles; Smirnova notes the industry will use about 61 million ounces of it this year. But that usage is anticipated to increase sharply on the basis of strong in hybrid and battery electric vehicles (BEVs). Smirnova says the automotive industry’s demand for silver should rise about 40% in the next five years, and that EVs could consume about half the world’s annual silver supply by 2040.
Additionally, silver is a key component of photovoltaic (PV) cells, the “building blocks” that make up solar panels. The silver creates an electric current from the electrons that are generated when sunlight hits the panels and helps export the current out of the cells for functional use. Smirnova says the solar panel industry gobbles up about 100 million ounces of the metal each year, but that number could rise as much as 85% – to 185 million ounces – within the next 10 years.
Also, Smirnova points to 5G cellular technology as a growth industry that could benefit silver significantly. Note that 5G is not a green technology, per se. However, its capacity to massively increase both transmission speed and connectivity has great implications for the green energy industry. For one thing, all technologies – whether rooted in renewable or nonrenewable energy sources – will have to be configured to respond to 5G. Beyond that, as electronics become smaller and more efficient, Smirnova says even more silver will be needed.
Analyst: “Green Transformation” Will Push Silver to $50 Per Ounce This Year
The outlook for silver certainly seems good. It’s not possible to know in advance the degree to which this outlook will bear fruit in the form of higher silver prices. But some analysts are willing to put their names to some rather rosy near-term silver price predictions.
One such analyst is Ole Hansen, head of commodity strategy at Saxo Bank, who sees silver potentially doubling in price this year on the back of green energy initiatives. “Turbocharging the rise in the silver price in 2021, even relative to gold, is the rapidly rising demand for silver in industrial applications, especially those driving the green transformation such as photovoltaic cells used in solar panel production,” Hansen wrote in December. He forecasts the white metal to double in price from present levels, reaching $50 per ounce sometime this year.
Saxo is not the only global investment bank that sees silver making a remarkable jump this year. Citibank analysts are very optimistic about silver’s 2021 prospects, as well, saying not only that $50-per-ounce silver is “a very realistic [price] target” but that $100 per ounce is “possible,” too.
These are, of course, nearer-term price forecasts. But where might silver’s price be headed beyond 2021?
The further out one looks at an asset’s prospective price, the less reliable the prediction. That’s to be expected. To be clear, even shorter-term price predictions can be unreliable. However, the more-limited time horizon does imply a firmer basis for the outlook.
Anyway, when it comes to longer-term projections, I’m less inclined to put much stock in any specific numbers and more inclined to try to get a sense for the condition of the underlying fundamentals in the years ahead. In the case of silver, it seems the metal could benefit from not only the strong likelihood of favorable (for it) monetary and fiscal conditions going forward, but also significantly higher industrial demand due to the green energy “revolution” that’s unfolding before us in real time. It’s not possible to know the degree to which this environment will come to pass or be sustained, but it’s reasonable, in my opinion, for savers to at least recognize the potential pro-silver influences in play.
