Prices could go on a strong run amid growing global demand and tight supply, a dealer forecasts

Silver still has significant upside and is a bargain at current prices even as it has joined in the recent gold price rally, according to a report by precious metals dealer SchiffGold this week.

Silver was trading at over $23 per ounce on Friday, having finished November 11% higher than the previous month. The price of gold was at around $2,020 per ounce.

According to the report, silver looks significantly underpriced based on its historical relationship with gold and given supply-demand dynamics.

The silver-gold ratio is currently over 81-1, which means it takes more than 81 ounces of silver to buy one ounce of gold. The ratio declined to 30-1 in 2011 and below 20-1 in 1979.

“When the spread gets this wide, silver doesn’t just outperform gold, it goes on a massive run in a short time. Since January 2000, this has happened four times,” SchiffGold wrote.

The dealer noted that while silver plays a smaller role as a monetary metal, its ratio to gold has gradually widened. “During periods of central bank money-printing, the gap tends to shrink. For instance, it plummeted in the aftermath of the 2008 financial crisis as the Fed engaged in extreme monetary policy,” SchiffGold stated.

Silver is commonly used in the manufacturing of automobiles, solar panels, jewelry, and electronics. The wide adoption of 5G technologies and the global drive towards green energy are projected to raise demand, thus further exacerbating the existing supply deficit.

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World headed for silver deficit – report

According to a recent forecast by Oxford Economics, cited by SchiffGold, silver demand for industrial applications and for jewelry and silverware production is expected to nearly double over the next ten years.

Some analysts believe that the price of silver fails to reflect the current supply-demand dynamics, as well as future demand or the growing supply deficit.

Record global silver demand and a lack of supply contributed to last year’s 237.7-million-ounce market deficit. It was the second consecutive annual deficit, and was described by the Silver Institute as “possibly the most significant… on record.” 

“At some point, investors will have to reckon with the shrinking supply of silver coupled with rising demand, along with the Fed’s inability to bring inflation back to its 2% target. When that happens, the price of silver will likely take off. If it does, $25 silver will look like a real bargain,” SchiffGold concluded.

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