Investing in silver: the bull market has only just begun

Silver is benefiting from increasing industrial demand, but it is also a store of value when things go wrong, and falling supply bode well too. David J. Stevenson explains how to profit.

silver coins
(Image credit: © Getty Images)

Sometimes you need a little bit of luck when making financial forecasts. In mid-September last year, we saw silver, trading at $20 an ounce, as a good long-term bet. And it began to rebound from a decline almost straight away. This week it reached $24, up by about a fifth. Measured in sterling, silver is around 17% higher.

Yet silver’s rally should be put in context. In January 2021, the metal topped $28.50. In 2011 it hit $48.60, the all-time peak. And in real (inflation-adjusted) terms, dollar-priced silver is hardly any higher than in 1918. Over the next few years, however, silver could regain its former glory. The metal’s fundamentals are strong and improving. Furthermore, the macroeconomic backdrop is starting to look more promising.

What is silver used for?

Silver is a wonderfully versatile industrial metal whose range of applications keeps expanding. Extremely durable and one of the world’s best electricity conductors, it is ideally suited to coating electrical contacts on printed circuit boards. As a result, it’s used in nearly all computers and mobile phones, as well as in solar cells and plasma display panels.

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Silver membrane switches are employed in televisions’ on/off buttons, microwave ovens, toys and keyboards. Silver ink removes the need for wires. Medical devices, bandages and ointments fight infections with the metal. What’s more, silver ions are added to water-purification systems as a sanitiser. They are particularly effective against antibiotic-resistant bacteria such as MRSA.

Electrification within the vehicle, power-generation and construction sectors is increasing demand. Silver is also one of the most popular materials in the jewellery industry, where it is often alloyed to improve durability (sterling silver, for instance, is made up of 92.5% silver, while other metals comprise 7.5%).

All the major categories that rely on silver “achieved record highs in 2022, pushing total demand for silver to a new high of 1.242 billion ounces (Boz)”, says the Silver Institute (SI). “Industrial demand for silver rose 5%, physical investment increased by 22%, and jewellery and silverware rose by 29% and 80%, respectively. Since 2020, the global total has increased by 38%.”

By contrast, global mine production actually fell slightly to 822.4 million ounces (Moz) last year. Recycling activity rose for a third year running. With last year’s 3% advance lifting it to a ten-year high of 180.6 Moz, however, scope for further increases may be limited. The upshot? “Along with record demand for silver and lower mine production,” notes the SI, “the silver market achieved its second consecutive annual structural deficit at 237.7Moz last year… possibly the most significant deficit on record.”

This year, “industrial fabrication should reach an all-time high”, says the SI. Demand for silver bars, coins and jewellery will ease marginally, while supply will only grow in the low single-digits. That means 2023 will see another large deficit for silver, the second-largest deficit in more than 20 years. Adding up the supply shortfalls of 2021-2023, global silver inventories by the end of this year will have fallen by 430.9Moz from their 2020 apex. That’s more than 50% of this year’s forecast anticipated annual mine production.

Granted, there are some risks to these estimates. The US has managed to avoid a recession so far. Should the problems afflicting many of America’s regional banks develop into a full-scale credit crunch, though, a significant economic slowdown would be inevitable. This would lower industrial demand for silver.

Looking beyond 2023, however, the omens are very good. Global demand for silver is expected to rise at a compound annual growth rate (CAGR) of 3% between 2022 and 2026. This compares with an anticipated CAGR in silver supply of 1.24% during the same period. Even then, production increases will depend on sufficient capital investment by miners. Photovoltaic (PV) requirements for the solar energy industry are likely to be major drivers of demand. The worldwide solar PV panel market was worth $180.4bn in 2020, and is set to reach $641.1bn in seven years’ time, according to industry watcher Allied Market Research: a very robust CAGR of 11.9%.

For silver values, though, the swing factor will be overall investment demand, which is set to continue rising. Why? Rattled by inflation, the US Federal Reserve has kept hiking the cost of borrowing. This has lifted real interest rates along with the dollar. A higher greenback means a slide in silver, and vice versa, as the metal is priced in dollars. Yet those US regional bank failures are likely to force the Fed to start cutting rates again in an attempt to prevent a credit crunch.

In fact, the dollar is already falling from its highs of six months ago due to concerns about the debt ceiling (see page 5). This determines how much the US government can borrow. It already owes an eye-watering $31.5trn and is uncomfortably close to the limit. America’s government won’t be able to pay its bills unless a political deal is reached. Even if it is,

falling interest rates are likely to weaken the greenback more anyway.

How does silver compare to gold?

Investors know that silver acts as another monetary barometer. It has historically mimicked and, indeed, amplified movements in gold, the classic safe haven in times of political and/or inflationary stress.

The gold/silver ratio shows how many silver ounces equal one gold ounce. It’s “the oldest continuously tracked exchange rate in history”, says Investopedia. In the 21st century, the ratio has ranged between 50:1 and 70:1, with a peak of 105:1 in 2020.

The gold/silver ratio is currently around 84, near the top of its 100-year 15-113 range. A return to just the mid-point of that century-long spread (around 64, even assuming unchanged gold) would lift silver by 30%. If the ratio were to compress to the 20th century’s 47 level, again presuming that gold remains unmoved, the silver price would increase to around $43 per ounce. That would be a very good return.

But silver’s end-game could prove spectacular.

“Silver usually surpasses gold in bull runs”, says Jeff Clark on GoldSilver. “Since most analysts expect gold to be higher in 2023, we can reasonably expect silver to outperform it.” Analysts also note that in bull markets, 90% of the move higher happens in the last 10% of the run. Clark is projecting a price of $100 within five years.

Wall Street investment advisers Goehring & Rozencwajg Associates, meanwhile, believes that “silver will rise substantially due to monetary reasons”. They think the US dollar is set to plunge as US debt is unsustainable, while “with higher rates, the US government won’t be able to pay the growing interest on that debt without printing money. Gold’s going to the $10,000 range; they’ll destroy the dollar. Gold will lead silver, but silver will surpass it, and the ratio will hit 20 again”. This implies a $500 silver price.

How to invest in silver

You don’t need to be this bullish, however, to want some exposure. So what are the best bets? One possibility is direct exposure via an exchange-traded fund(ETF)-type vehicle. Alternatively, you can get greater leverage by purchasing shares in silver miners whose cash flows and profits – and stock values – are likely to rise and fall faster than the metal’s price.

Established silver producers have less upward potential than “juniors” or developers, but also lower downside risk. They often produce several other metals, providing extra diversification. You could also benefit from rising dividends. Furthermore, with many silver mines in countries that can be ambivalent about non-domestically owned operations, it pays to consider political risk. We previously recommended the following investment ideas and they remain excellent ways of playing rising demand for silver.

The WisdomTree Physical Silver (LSE: PHSP) is an exchange-traded commodity (ETC) fund that offers a simple, cost-efficient and secure way to get a return equivalent to silver’s spot price. WisdomTree Physical Silver is backed by segregated, individually identified and allocated silver bars held by custodian HSBC Bank.

Wheaton Precious Metals (NYSE or Toronto: WPM) is one of the world’s largest precious metals (PM) streaming companies. It buys, at or below market prices, part or all of the PM or cobalt produced by high-quality mines. It pays an upfront fee and more on delivery. Apart from that first cash payment, Wheaton typically doesn’t incur capital expenditure or exploration costs at its suppliers. So it benefits from rising silver prices and achieves high profit margins without taking the risks to which physical miners are exposed.

Wheaton has a portfolio of low-cost, long-life assets. As of March 31, 2023, it had 28 long-term purchase agreements with 22 different miners. In 2023’s first quarter, 40% of revenues came from silver. Its strength is reflected in its share price. The market value is $23.5bn and the prospective price/earnings (p/e) ratio is 37. But WPM’s valuation isn’t earnings-driven. As it’s powered by precious metal prices, notably silver and gold, it’s a great way to benefit from their potential upside.

Hecla Mining (NYSE: HL) is the largest primary US silver producer, with a market share above 40%. It operates four mines, two of which are in the US and two in Canada. It also owns several exploration properties and pre-development projects in world-class North American silver- and gold-mining districts. Moreover, it ticks all the political-stability boxes.

Net debt is $398m versus equity of $2bn and a €3.7bn market value. The p/e is 53, but again the primary driver of the company’s shares is the silver price. The shares are a long-term buy.


David J. Stevenson has a long history of investment analysis, becoming a UK fund manager for Oppenheimer UK back in 1983.

Switching his focus across the English Channel in 1986, he managed European funds over many years for Hill Samuel, Cigna UK and Lloyds Bank subsidiary IAI International.

Sandwiched within those roles was a three-year spell as Head of Research at stockbroker BNP Securities.

David became Associate Editor of MoneyWeek in 2008. In 2012, he took over the reins at The Fleet Street Letter, the UK’s longest-running investment bulletin. And in 2015 he became Investment Director of the Strategic Intelligence UK newsletter.

Eschewing retirement prospects, he once again contributes regularly to MoneyWeek.

Having lived through several stock market booms and busts, David is always alert for financial markets’ capacity to spring ‘surprises’.

Investment style-wise, he prefers value stocks to growth companies and is a confirmed contrarian thinker.