Date: 8/5/2020
Author: Mr. X
Gold just hit $2,000 an ounce, briefly touching a record of $2,027.30. Some Bank of America analysts predict gold will hit $3,000 an ounce over the next 18 months. Central banks will probably continue buying gold, further supporting the price. Interest rates, if anything, will get even lower as President Trump tries desperately to revitalize the American economy before November’s election.
However, some investors are overlooking silver during this current gold rush. While the gold price has increased by more than 13 percent over the last month, silver has increased by over 40 percent. Most of the arguments about gold being a store of value also apply to silver. Silver also has one critical additional advantage. Unlike gold, which is valuable simply because almost every culture believes it is, silver has industrial uses that are much in demand.
Silver is used in LED chips, semiconductors, touch screens and other products that are vitally important. However, one of silver’s most important uses is in solar panels. Despite new manufacturing technologies that have reduced the amount of silver needed in each panel, the increasing use of solar power will more than compensate. Photovoltaic (PV) system capacity is expected to more than double over the next 30 years, far outpacing any other form of renewable energy. Statistics from the U.S. Energy Information Administration show such a shift towards renewable energy is already underway.
Silver may also receive a boost from political changes in the United States. Presumptive Democratic nominee Joe Biden’s energy plan promises the “installation of millions of solar panels – including utility-scale, rooftop, and community solar systems.” He would fund this by raising the corporate tax rate. Mr. Biden currently enjoys a strong lead in most polls, including in most battleground states. Thus, while corporations and investors who benefitted from the pre-coronavirus Trump economy will probably take a hit if Biden wins, silver mining companies specifically may see something of a subsidy from the government. Any large-scale effort to build solar panels will dramatically increase the demand on silver.
Regardless of who takes the White House, the United States federal government is already accumulating a growing deficit, prompting Fitch Ratings to issue a warning earlier this week. The federal government is also virtually certain to pass an additional stimulus plan in the next few weeks adding between $1 and $3 trillion in spending. This plan may not bail out state and local governments, many of which are already facing a budget crisis. If a revitalized progressive movement wins in November, newly elected liberals are not going to feel bound by a program of budget-cutting and fiscal responsibility, even if there is a debt crisis.
The Federal Reserve is also expected to announce that it will commit to low interest rates and a deliberate program of inflation to allow the American economy to recover from the pandemic. As low interest rates became a staple of American economic policy, investors will become comfortable with gold and silver as investments, not simply as hedges against inflation, which will be seen as increasingly normal.
Silver also has a trump card over gold because of silver’s use in 5G technologies. Multi-layer ceramic capacitors (MLCCs), many of which require silver, are more heavily used in 5G enabled products. Even if new production methods reduce the amount of silver required in each MLCC, the overall volume of silver required will probably increase over time. The Internet of Things, autonomous driving products, and various LED screens and displays will all drive demand.
Investors seem to be catching on that silver is a safe refuge from the possible fiscal disaster bearing down on the federal government. However, such prophecies of doom are familiar to longtime traders, and gold and silver are not magic talismans that are guaranteed to increase in value. What is different this time is that silver’s use as an industrial metal is poised to skyrocket, especially if Democrats in power end up indirectly funding increased silver consumption by subsidizing solar power. Furthermore, this increase in industrial use will be taking place in a semi-permanent atmosphere of low interest rates, inflation, and increasing deficits. These are all trends which historically favor precious metals.
Over the last few months, silver may have been a profitable investment for you. If you hang on or get in now, it may prove to be even more profitable over the next few years, or even decades.
