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Sprott Silver Report: Silver’s Critical Role In Electrification May Fuel Its Rise

By Maria Smirnova  

SILVER IS AN ATTRACTIVE INVESTMENT OPPORTUNITY  

At Sprott, we remain bullish on silver’s investment merits. Like gold, silver is a tangible store of value that acts as an effective portfolio hedge. Despite lackluster performance during the past two years, silver fundamentals remain compelling. We believe silver can play a role distinct from gold in a diversified investment portfolio.

By historical standards, both silver bullion and silver equities appear significantly undervalued. From a contrarian point of view, silver represents an attractive investment opportunity. Sprott’s bullish outlook is supported by three key factors, which we explore below:

  1. The current 80x gold/silver ratio is elevated compared with an average of 56x over the past 50 years.
  2. Silver’s fundamental supply/demand outlook has never been more supportive of a strong price: While supply is constrained, demand is underpinned by synchronized global economic growth and an uptick in industrial demand (fueled by the trends of electrification and automation).
  3. Silver short positions have reached near all-time highs.

SILVER’S RECENT LACKLUSTER PERFORMANCE

We acknowledge that investing in silver has not provided much bling to portfolios recently. For the past 18 months, the silver price has hovered between $16 and $18 per oz.  As shown in the chart below, silver reached a 31-year high near $50 per oz. in April 2011, on U.S. dollar weakness and fears of inflation (silver’s all-time high was reached on January 18, 1980, at $49.45 per troy ounce). This safety play fizzled and silver fell below $14 per oz. by January 2015.

Silver Prices (2000 – 2018), Source: Thomson Reuters Eikon, GFMS, Thomson Reuters, Date: May 31, 2018.

Although silver climbed nearly 15% in 2016 and gained 6.4% in 2017, it underperformed gold, which rose 8.6% in 2016 and 13.1% in 2017. Both metals fell short compared with U.S. equities, which climbed 12.0% (2016) and 21.8% (2017) as measured by the S&P 500 Index.

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MARKET SUMMARY

INDICES

Name Last Change
DOW 25058.10 0.03%
S&P 500 2753.17 0.75%
NASDAQ 7820.20 0.07%
TSX 16435.46 0.65%
TSX-V 712.33 0.00%

Resource Commodities

Name Last Change
Gold 1232.43 0.03%
Silver 15.51 0.19%
Copper 2.75 0.000
Platinum 828.50 0.000
Oil 70.46 1.42%
Natural Gas 2.76 0.44%
Uranium 23.83 0.88%
Zinc 1.16 0.00%

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