Gold has outperformed silver all year. But then a funny thing happened in October.
Gold went down … and silver didn’t.
Here at the Edelson Institute, we’re expecting a change in trend — a bullish turn in the metals. And silver could lead the way higher.
Silver is benefiting from relatively decent industrial demand — much more so than gold. In fact, according to The Silver Institute, industrial demand accounts for just over half of all silver consumption, whereas it only accounts for 17% of gold’s use.
And industrial metals demand is picking up around the world. The International Monetary Fund upgraded its growth outlook for the U.S., Europe, Japan and China. The IMF added that the global economy is growing at its best pace in the last 10 years.
Manufacturing in Europe is growing at its fastest pace since at least 2014. China’s manufacturing hit a 20-month peak in September. And despite that country’s war on smog, which has led to the closure of many old factories, China’s numbers for October didn’t dip much.
Here in the U.S., manufacturing is zooming along at the fastest pace in 13 years! The Institute for Supply Management’s Factory Index climbed to 60.8 in September. That’s its highest reading since May 2004.
This is good news for all sorts of industrial metals. And the real industrial demand growth for silver is in photovoltaics — solar power.
That demand jumped to 76.6 million ounces in 2016 from 57.2 million in 2015. That’s nearly 25% growth. And the global solar power buildout is accelerating.
Now, not everything is shiny for silver. Demand for silver coins is plummeting. Purchases of American Silver Eagles is at a 10-year low.
And while ETF investors are stocking up on gold, you can’t say the same for silver.
The drop in ETF holdings of silver from June through September helped pressure silver prices lower. In turn, that helped cut the metal’s gain for the year in half.
But it’s likely that industrial demand is going to lead investor demand. Why? Because there is a supply squeeze shaping up for silver as well.
Mine production of silver will drop about 3.5% this year, to 857 million ounces. That’s what researchers at London-based Metals Focus said in a report dated Oct. 18. That will make the second year in a row that silver production has gone down.
In other words, we’ve hit peak silver.
Now, let’s bring it back to manufacturing. Researchers also say that industrial demand for silver will expand 3.1% to 502 million ounces this year. That accounts for more than half of total consumption.
This sounds like the ingredients for a boom to me.
The next time industrial demand ramps up, silver could kick into higher gear. You want to be ready for that.
An easy way to play this is using the iShares Silver Trust (NYSE: SLV). But there are other, better ways. Mining stocks and funds that are leveraged to the metal. When silver moves higher, these investments are poised to go ballistic.
Small mining stocks in particular are very leveraged. The good ones have the advantage of producing silver for less than the market price. When silver goes higher, the profit margins of these tiny companies can widen like the Grand Canyon.
I’m already steering my subscribers to these investments. Whatever you buy, do your own due diligence.
All the best,
P.S. I’ll be speaking at the Metals Investor Forum in Vancouver, Canada, on Friday, Nov. 10, and Saturday, Nov. 11. If you like undiscovered gold and silver miners, explorers and developers, this is a great conference. If you’re in the area, consider joining me. You can register online here.