Silver Poised for Major Breakout as Fundamentals Align

• The gold/silver ratio is still near historic highs around 88, well above the typical peak of around 80, indicating silver is relatively undervalued compared to gold.
• Silver supply deficits continue growing, with the deficit reaching 237 million ounces in 2021 and potentially 160-180 million ounces in 2023, reducing available inventory.
• Solar energy demand is surging, with new technologies using far more silver per panel. This will require a vast new silver supply.
• The IEA predicts solar will become the number one global electricity source by 2027, necessitating massive silver demand.
• Once the gold/silver ratio declines below 80, it tends to decline rapidly as silver plays catch up. This ratio decline could start with gold over $2100.

Surging Deficits Squeezing Inventories

A severe and growing imbalance between silver supply and demand is one of the key factors exerting increasing pressure on silver prices. As recently as 2020, there was still a slight silver surplus of 50 million ounces between global mine production and demand. However, in 2021, this situation flipped dramatically, with the market shifting to a deficit of 50 million ounces. Most strikingly, in 2022, the silver supply deficit ballooned massively to 237 million ounces, representing a swing of over 300 million ounces in just three short years. To put the scale of this deficit in perspective, 237 million ounces is well over 10% of the total annual silver supply.

For 2023, initial projections estimated a deficit of around 140 million ounces. However, that number will likely be revised up closer to 160-180 million ounces when more comprehensive data becomes available later this year. This would represent a second consecutive year of major supply deficits, rapidly draining global silver inventories and warehouse stockpiles.

While some of the deficit can initially be filled by drawing on existing silver reserves, those sources are quite limited in the scope of the total market. At some point very soon, the market will have to reckon with the stark reality that new mining supply simply cannot come online fast enough to match this ballooning rise in industrial, investment, and other silver demand. Once these reserves are depleted in the face of sustained deficits, likely within the next 1-2 years, the silver market will reach a pinch point. With demand still rising and mining output constrained, this risks sparking the conditions for a price spike or a discontinuity event where prices surge dramatically higher due to the mounting supply crunch.

Two Blockbuster Technologies Driving Solar Demand

A significant portion of the soaring silver demand comes from the solar panel manufacturing industry. Two new solar panel technologies - TOPCon and HJT - use far more silver per panel than traditional methods. TOPCon uses 50% more silver, while HJT uses 150% more. These technologies produce more energy, justifying the higher silver cost.

Consultancy RAE Energy expects these two technologies will make up 35% of global solar panel production capacity in 2023, up from just 10% three years ago. This growth is ballooning the amount of silver required. With solar demand skyrocketing, more panels are being produced using these new high-silver technologies. This necessary boost in silver supply cannot come from current mining output.

Number One Energy Source by 2027

Driving the massive growth in solar, the International Energy Agency predicts solar will become the number one energy source worldwide by 2027, surpassing coal and natural gas. For this to happen, astronomical amounts of new silver supply will be required for all the new panels.

Given the projected growth rates for high-silver solar technologies like TOPCon and HJT, coupled with the IEA's prediction of solar's imminent dominance, existing silver stockpiles will quickly be strained. New mining simply cannot ramp up rapidly enough. Once the silver market reaches this pinch point, prices are likely to surge higher.

Silver to Outperform Gold

Historically, once the gold/silver ratio declines below 80, silver tends to play catch up and drop rapidly compared to gold. This ratio measures how many ounces of silver are required to buy a single ounce of gold, with a higher number indicating silver is undervalued.

This mean reversion after hitting an extreme can be explosive. For example, in April 2020, the ratio hit a record high of 127. By August 2020, just four months later, it had plunged to 72, a huge swing signaling a major repricing of the two metals.

The gold price will rise above $2100 as the likely catalyst that could initiate another sustained ratio decline this cycle. As mainstream investors see gold surge to new highs, they may start viewing silver as a more affordable alternative to precious metals investment. This influx of investment demand from retail buyers, as expectations build around silver's potential, could help drive the ratio dramatically lower.

Historically, silver has tended to lag gold early in precious metals bull markets. However, once silver kicks into gear, it tends to massively outperform gold in the middle and later stages. For example, from 1970 to 1980, as precious metals boomed, gold gained over 2500%. Meanwhile, silver absolutely skyrocketed, gaining close to 6000% in that decade.

Once the gold/silver ratio drops under 80 and silver gets moving, the potential for silver to quickly rise above key technical and psychological levels at $25, $27, $30 and beyond. Above $25, silver will start to gain upside momentum, while moving above $30 is likely to accelerate gains as silver transitions into full bull market mode.

After eclipsing $30, silver could challenge levels not seen since its two prior secular bull market peaks in 1980 and 2011, when silver approached nearly $50/ounce. For investors with the appropriate risk tolerance, silver offers explosive upside potential as the metal enters its next major multi-year upcycle.

Investment Thesis for Silver

• Current gold/silver ratio signals silver is undervalued relative to gold
• Supply deficits reducing inventories and setting the stage for price spike
• Surging industrial solar demand requires a massive new silver supply
• Solar becoming the top energy source will drive silver demand higher
• Declining gold/silver ratio tends to unleash silver's bull market potential

With gold reaching new records, silver appears poised for a bull market as well. The historically high gold/silver ratio shows silver is under-owned and underappreciated compared to gold. Meanwhile, structural supply deficits continue draining finite global inventories. At the same time, surging demand from the solar industry requires a substantial new silver supply, especially with new high-silver technologies becoming widespread. With solar expected to become the number one global electricity source by 2027, the stage is set for an unprecedented rise in silver demand in the coming years. Once the gold/silver ratio declines below 80, possibly triggered by higher gold prices, expect silver to begin to play catch up and for these extremely favorable supply/demand fundamentals to finally be reflected in the silver price.