Making Sense of Silver’s Monster Rally to Seven Year Highs

Silver is experiencing strong upwards momentum in recent weeks and currently sits at prices not seen for seven years. We’re in the midst of a perfect storm that could bring silver to a new all time high and beyond. The main catalyst for the move seems to be the EU’s approval of the biggest green stimulus in history but there has been pent-up upwards potential for years due to it’s safe-haven attractiveness and key technicals.

Looming Green Industrial Demand For Silver Is Driving Prices Higher

Demand for renewable power was expected to increase fivefold by 2030 before the EU earmarked over half a trillion euros ($572 billion) specifically for environment-friendly spending. Solar panels currently make up 2% of the worlds energy output, investors are now expecting that number to quadruple within the next decade. Silver, having the highest electrical and thermal conductivity of all metals, is a core element in manufacturing solar panels.

The anticipated demand for solar panels is driving some of silver’s current bull run.

Besides solar panels, silver has many green revolution friendly industrial applications including everything from automobile components to control rods used in nuclear power plants. We’re going to see increased demand for silver as direct result of the historic stimulus passed yesterday.

Investors are playing hot potato with Fiat currency

In order to stimulate the economy in response to the continued disastrous effect from the Coronavirus, governments have been creating fiat currency at a pace never before seen in history. While this is great for keeping the economy moving in the short term, it leads to inflation and devaluation of the currency being produced.

Silver is helping investors find a way to store value in light of the world government’s response to the pandemic.

Throughout history, silver and gold have been able to store value due to their limited supply. Investors paying close attention to the world government’s aggressive fiscal policy response to the virus are looking for a place to store their wealth, and silver is being seen as an attractive asset due to it’s historic track record of value storage, and it’s historically low price in relation to the yellow metal.

The Silver Gold Ratio is Too Damn High

The silver to gold ratio surged to a new all time high in March of 120 which was a dead giveaway to silverbugs with a long memory that the price was about to surge higher. Historically, whenever the key indicator moved over 100, there was a sharp corrective movement downwards, which always fared well for silver’s price.

~100 has acted as key resistance for the silver to gold ratio for the past century.

The last great surge in silver prices happened in 2011 while the US (and to a lesser extent, global) economy was still suffering from the financial crisis of 2008. Similar in some ways to what’s happening now, this surge was largely due to safe haven buying as investors feared the inflationary effects of QE measures taken by the Fed. This brief bull run put silver prices around $50 and was relatively short lived.

The surge before that was in 1980 when silver peaked around $120. This was also due to rising inflationary fears, but the real driver was the cornering of the silver market by the Hunt brothers. This lead the highest silver prices that we’ve seen yet, and it also resulted in the brothers being dragged in front of congress to explain themselves, much to true fiscal conservative’s chagrin.

As far as where silver is headed next, this is a very interesting question due to perfect storm that seems to be brewing. Looking at only the silver gold ratio, if history repeats itself we can see the price land somewhere between $50 and $120, but some analysts are calling for the silver to gold ratio to fully settle back down to it’s historic value of around 12. This would put silver prices somewhere along the lines of $150 unless we see gold coming down while silver is on the way up.