It’s a bedrock of the “Econ 101” Rules of Investing.
Call it the “Good/Better/Best” investment case for a financial asset … be it stocks … or crypto … or commodities.
Good: Demand rises while supply holds steady. The impact: Prices rise.
Better: Demand holds steady while supplies plummet: The impact: Prices rise.
Best: Demand increases, while supplies plummet. The impact: Prices rise … and keep rising … especially if this is a sustained situation.
We’re about to see a “de facto” variation of Scenario No. 3 … with silver.
Financial and geopolitical uncertainty are surging on a worldwide basis. Inflation is top of mind – because of the cumulative price increases that have hammered us over the past four years … as wages lagged.
That sparks fear … and the desire for foundational support. That sparks demand on the investment side.
Then there’s industrial demand. New technologies like solar and artificial intelligence (AI) are fueling demand, too. Global silver demand is projected to hit 1.2 billion ounces this year – which would be just below the all-time record.
Let’s now turn to supply. This is a bit more nuanced, but here we’re going to feel the squeeze. Silver mine output fell by 1% to 830.5 million ounces last year. And ore quality is falling in many places.
The bottom line: We’re looking at a version of Scenario No. 3: According to the Silver Institute, the trade group that serves as the industry’s voice. As demand advances, the silver “deficit” is expected to surge to 17% – the fourth year in a row for a shortfall.
To truly “bottom line” this – and to find ways for regular folks to profit - I turned to Peter Krauth, a friend, author and former colleague who now runs the Silver Stock Investor, an investment publication focused exclusively on the “common man’s precious metal.”
During an hour-long interview in early March, Peter’s silver forecast had silver hitting $30 an ounce by the end of 2024. And the potential catalysts in place could rocket it to $300 or beyond in the years to come – a scenario he detailed in his 2022 book: The Great Silver Bull.
“I’m bullish on silver – starting with this year,” Peter said during that talk.
“Over the last three years, we’ve seen structural deficits in the silver market. The total of those three years’ deficit adds up to half of an entire year’s supply. The Silver Institute is forecasting another shortage this year, and ongoing deficits for years. A lot of that is being driven by industrial demand, which hit a new record last year … and which is being fueled by new technologies like solar and AI. Finally, I expect investment demand to kick in pretty dramatically this year. My forecast is that silver will reach $30 before the end of this year. Ultimately, I see a ‘mania phase’ that could take silver to as much as $300 an ounce.”
In our talk, Peter presents his case for the supply/demand imbalance. He also shared strategies for investing in silver directly.
I released a version of this interview earlier in the year to all the members of SPC … because I see this as a huge “special-situation” opportunity that everyone should be aware of.
Having said that, I did hold back some key slices of that interview – exclusively for the members of our newly launched paid publication, Stock Picker’s Corner Premium.
I have a preview of that updated interview today for everyone, but SPC Premium members have exclusive access to see the additional ways to invest in silver, which includes two of Peter’s favorite silver stocks.
Here’s an edited transcript of our talk.
WPIII: Peter, thanks for taking the time to chat today. As you know, we created Stock Picker’s Corner to give our members an “edge” in building wealth. Your price prediction for silver – which we’ll get to here in a second – is an attention-grabber. So is the ‘investment case’ you’re making.
I want our members to have the lowdown on this developing opportunity.
So, for everyone here, including folks who may be new to metals, let’s start with the basics … the foundational question.
Why silver?
PK: Bill, as you know from our chats over the years, I’m a mining and metals guy. I live up here in Canada – one of the true mining meccas on the planet – so I know the players, know the history, and know the market. I regularly visit properties and mining sites and see the operations first-hand. And I’ve made silver my chief focus.
WPIII: Because … ?
PK: Because … like its more-expensive counterpart … the so-called “yellow metal” (aka gold) … silver is viewed as a "store of value.” But, unlike gold, silver is an industrial metal, too.
Its use in solar panels has soared to 20% of the market. It’s also in automobiles, electronics like smartphones and tablets, medical applications, glass coatings in mirrors ... and that’s just a short-list of the “use cases.”
WPIII: I know I’ve heard you say that “we’re within a few feet of silver nearly every second of the day.”
PK: [Chuckles] Your memory is excellent.
WPIII: If I also remember correctly from our many talks, about half of silver demand is driven by some of these industrial uses … or, at least, that was the case as recently as 2022.
PK: That’s right, Bill. In fact, based on 2023 data, it’s now more than 60% going to industrial applications. And I’ve always found that fascinating … you know … that silver is both an industrial metal and a monetary metal.
Looking ahead, I believe silver will be a massive wealth generator, which I know is the type of “edge” your readers are looking for. As everyone sees gold prices keep ticking past the $2,000 mark, some will feel it’s gotten too expensive.
As an alternative, people will turn to silver, which is a smaller market. Being a smaller market, it won't take much to push prices higher.
So the time to build your silver position is … now.
WPIII: Peter, I’ve always been fascinated by the investing subculture … and the passion … that’s tied to silver collectors, accumulators and investors. I’ve seen online communities where folks talk about “stacking silver.” They collect U.S. Silver Eagles, Canadian Maple Leafs and South African Krugerrands. They grab bank bags of silver coins … hoping to score so-called “junk silver.” They share pictures of their silver hoards with the same pride that parents share images of their kids. Some of the collections out there are hugely impressive.
PK: [Laughs] That’s a great observation, Bill. There is a passionate community out there, with some folks labeling themselves as “Silver Stackers.” These “stackers” work to add bullion, bars, silver rounds, ingots and coins of the types you mentioned … and more … to their “hoards.”
It’s a colorful group, to be sure. And a passionate one. But I have to say … that passion is well-placed – they’ve identified the “right” asset to stack.
WPIII: That’s good stuff …
So, Peter, you’ve provided a quick rundown of silver’s “use cases.” And the “community” behind it.
Let’s talk numbers. Can you share a little more about where silver is trading now compared to its historic range?
PK: When we originally chatted, silver was trading around $24. It’s now climbing closer to $29, but back in 1980, silver traded for nearly $50 per ounce. That means silver prices are still roughly half of what they were at their peak, which was 44 years ago. That’s true for no other commodity I can think of.
In comparison, gold prices just reached an all-time high.
On a relative basis, that tells me silver prices have a lot higher to go.
WPIII: Interesting. Well, you know what I’m going to ask next. What’s the general outlook for silver in 2024? And, more importantly, I want to know your outlook.
PK: Bill, I’d have to say that the overall outlook for silver this year is pretty favorable. The last three years have seen structural deficits in the silver market. The total of those three years’ deficit adds up to half of an entire year’s supply. The Silver Institute is forecasting another shortage this year, and ongoing deficits for years.
A lot of that is being driven by industrial demand, which hit a new record last year. Demand from solar is the single largest industrial use – and it’s soaring. The International Energy Agency expects solar to become the largest source of electricity globally by 2027, surpassing coal and natural gas for the first time.
In addition to all of this, I expect investment demand to kick in pretty dramatically this year. I don’t know yet what the trigger will be – maybe Fed rate cuts, a banking crisis, stock market crash, a recession, or any number of events.
My forecast is that silver will reach $30 before the end of this year.
Ultimately, I expect silver will soar in a ‘mania phase’ to about $300. Now I know that sounds sensational. But, in my book, I provide several indicators that all point to that price level. That’s just based on the history of how silver has performed in previous bull markets. In fact, one silver-mining executive just told me, after reading my book, that he thought my reasoning was perfectly sound and logical.
WPIII: Let's do a little bit of “handicapping” here … and talk probability (from 0% to 100%). What odds do you give your forecast of coming true? Also, can you share with the members what needs to happen for your outlook to come true?
PK: UBS strategist Joni Teves recently said: “In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold.” She expected gold prices to hit $2,200 (which they have) and said that a ‘dramatic’ outperformance awaits silver in 2024.
I completely agreed with that. We know that silver starts to rally strongly after gold, with a lag, when the Fed starts to cut rates. In fact, my research shows that silver rallied sharply in each of the last three Fed rate-cutting cycles, with an average return of … 413%.
We can never be 100% certain, but the Fed will likely cut rates substantially this year. The central bankers don’t want to look like they are impeding the economy in an election year, and a recession also looks very probable. Throw in a black swan, and we could get more rate cuts than the market is pricing in currently.
WPIII: You mentioned gold a moment ago. There’s gold/silver ratio (GSR). Does that come into play? The economy? Industrial demand? Inflation?
PK: Good follow-ups, Bill. I also think the risk of inflation rising again is being underestimated. In the 1970s, we witnessed three successive waves of inflation, each higher than the last. My working scenario is that we will see a similar pattern again. I call this the “inflation decade.” I don’t expect inflation to go back to 2% and stay there.
WPIII: Yeah, Peter, I couldn’t agree more. Some experts are calling it “The Great Disconnect” – this feeling of impending financial/economic doom … despite an economy that’s pretty strong on paper.
PK: And inflation plays a big role in that, doesn’t it?
WPIII: Absolutely. It’s really about cumulative inflation – and the 20% leap in prices we’ve seen since 2020. Think about that, Peter … 20%. Hourly wages rose a-barely-higher 21.5% during that same stretch. But since January 2021 – when U.S. President Joe Biden took office (and that’s a data point … not a political one) – inflation has outpaced wage growth … 18% inflation to 15.4% in wage growth.
Car insurance is up 44% (including 20% in the last year alone). Gasoline has soared nearly 35%. Electricity has zoomed 28%. And rent has jumped nearly 20%, the Washington Post says.
Then there are those painful trips to the supermarket. Groceries have jumped nearly 21%.
It’s been more than 30 years – that’s right, three decades – since food chewed up this much of our paychecks. Whether we’re eating at home or dining out, a full 11% of our income now goes to food – the most since 1991.
PK: [Nodding] That’s right, Bill.
U.S. inflation has not been below 3% since March of 2021. I think the Fed will eventually have to raise its inflation target to 3% from 2%. That will be a new inflation paradigm.
The gold/silver ratio is a good indicator as to the relative value of silver versus gold. The average of the last 40 years is about 60. We’re currently near 85! Ninety, Bill! It means that it takes roughly 85 ounces of silver to buy one ounce of gold. I think once the Fed cuts rates, gold will rise and silver will rise faster, bringing the ratio down.
And by the way, Bill: When the ratio is falling, it’s usually good for the price of both metals.
Going back to gold for a moment … it’s been stellar – almost continuously above $2,000 – since late November. And yet … sentiment is in the toilet. Well, at least in the West. Ronald Stoeferle, who publishes the must-read annual “In Gold We Trust Report” recently spoke at gold conferences in Asia and the Middle East. He told me they are very bullish on gold in those parts of the world. I guess it boils down to their long history with – and appreciation for – precious metals.
Gold has been super strong, especially since the U.S. weaponized the dollar by freezing Russia’s holdings of U.S. Treasuries. You can be sure a lot of central banks and sovereign investment funds (SWFs) suddenly realized they were overweight on Treasury holdings and underweight on gold. After all, gold and silver are no one else’s liability.
WPIII: That’s great info, Peter. What’s your preferred “investment vehicle” for silver? Are you a coin guy? And if so, what kind?
PK: For physical silver, my main choice is one-ounce coins. I know we’re both fans of U.S. Silver Eagles, and I think Canadian Maple Leafs are another great option, being that they are instantly recognizable. You will pay more for mint-issued coins, but you will also get more for them when you sell.
WPIII: I love Silver Eagles. And, as I often tell folks, the Maple Leaf is a beautiful coin. I especially like Maple Leafs with added little “privies” – little added images of such alluring topics as the Titanic, Sasquatch, a WWI tank … and more. They’re super cool.
PK: As someone who lives in Canada, I couldn’t agree more.
WPIII: With coins do you prefer between ungraded and graded? What are your parameters there?
PK: I’ll admit, Bill, that I’m not an expert on collectible coins.
That said, I’m quite sure graded is preferred over ungraded, as it gives the owner an assurance of the quality level.
Some people may prefer bars, and if you go that route, I would go with the larger sizes of 10 oz, 100 oz, or 1 kilo.
I also find “junk silver” interesting, which is coins that have little value outside of the silver content within them.
WPIII: Undoubtedly, we have folks with different experience levels in buying precious metals. If you had a generalized “strategy” for everyone, what would they need to follow? I guess what I’m saying is that … with physical silver … for folks to avoid being “shorn” … where should they look to make their purchases?
PK: Bill, I love the messaging of Stock Picker’s Corner that investing has been made complicated ... but shouldn’t be. My advice falls right in line with that straightforward approach.
Demand is increasing for precious metals, so it’s important to pay attention to premiums and not overpay.
Also, take the time to find a reputable dealer. By that I mean … do your homework. Find out how long they have been in business and study the customer reviews and testimonials. A lack of reviews … or a “stack” of negative reviews … gives you a quick red flag that it may be a service to avoid.
WPIII: “Stack” … I see what you did there …
PK: I couldn’t resist …
[Both men laughing]
WPIII: Okay, okay … so … for folks who really like physical silver – but maybe are worried about storage and security … or liquidity, for that matter – let’s talk about some other avenues to being a Wealth Builder using silver. Can you talk a little bit about miners and royalty plays?
PK: Absolutely, Bill … in fact, finding wealth plays of that kind are pretty much “Job No. 1" at The Silver Stock Investor.
I have two for your folks here today.