Silver is the best performing commodity of 2016

Published at Jul 19, 2016, in Features

Silver has surged over 40% since the beginning of 2016, making it the number performing commodity of 2016. But is the surge of the precious metal just the beginning of things to come?

Historically the price of silver tends to track the price of gold as both are seen as monetary metals.

Silver is often more volatile, however, experiencing larger up and downswings with market movements. Essentially, silver could be explained as gold on steroids.

Despite coming out of the ground at a ratio of 9:1, the price ratio of silver to gold currently sits at around 65:1.

With today’s price of silver at AU$26.5p/oz and gold $1755p/oz, we would have to see silver at around $195p/oz to see that ratio balance out.

That’s a 700% gain in the price of silver that would need to take place.

With some of the world’s wealthiest people now buying up gold, it may be worth getting some silver exposure to catch any up movements in the yellow metal.

Industrial demand for silver rising

Unlike gold that mostly sits in vaults, silver is used up in industrial use. Often in trace amounts that are non-recoverable.

Silver has hundreds of industrial and medical applications that have seen its usage rise.

Its unique properties make silver the most electrically conductive, thermally resistant and reflective metal on the planet with no known substitute.

Most recently silver has seen demand for it rise as it is the primary ingredient in photovoltaic solar panels, which accounts for 85% of solar panels on the market.

With solar power being one of the key drivers in the growing clean energy movement we can expect demand for the physical metal to increase.

To give you an idea, 2.8 million ounces of silver are needed to generate 1 Gigawatt of solar power.

As demand for solar panels increase around the globe it is expected to put a strain onto the already lagging supply of the precious metal.

Shortage in silver developing

Yearly deficits have been accumulating year over year in the silver market with consumption far outstripping demand.

This has seen the net silver deficit for the last three years combined equal over 350 million ounces.

Due to silver typically being mined as a by-product of base metals it’s not as simple as just mining more silver out the ground to meet demand, let alone finding where it is.

It is estimated that Australia has 16% of the world’s remaining silver in the ground, according to Geoscience Australia.

Making South32’s (ASX:S32) Cannington silver-lead-zinc mine a prized asset, being the world’s largest silver mine, located in Queensland.

Other companies like Silver Mines (ASX:SVL) have the highest grade undeveloped silver project in Australia.

With a major silver shortage developing and increasing demand we could see the scarcity of the metal result in skyrocketing prices.

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