Silver Shines: Industrial Demand & Market Dynamics Present Compelling Case for Investors

• Silver prices have shown strong performance, with potential for further growth
• Industrial demand, especially in electronics and solar PV, is driving silver market dynamics
• The gold-silver ratio has widened, potentially indicating an opportunity for silver investment
• Recycling of silver may increase with higher prices but faces technical challenges
• The Silver Institute predicts continued growth in silver demand, particularly in emerging technologies

Silver Lining: Investors Should Consider Silver in Their Portfolio

Silver is emerging as a critical component in various industries in an era of rapid technological advancement and increasing focus on renewable energy. This precious metal, often overshadowed by its more glamorous counterpart, gold, is garnering attention from investors due to its dual role as both an industrial commodity and a store of value. Recent market trends and industry insights suggest that silver may be poised for significant growth, making it an attractive option for investors looking to diversify their portfolios.

Silver's Recent Performance

Silver has been showing impressive performance in recent times. In the second quarter of the current year, silver hit a high of $32.52 per ounce, closing at $29 and change at the end of the quarter. This represents a +175% increase over the quarter, making it the best-performing asset in the precious metals complex. It's going to go further. When we look at the silver complex, and factor in industrial demand and factor in Federal Reserve cuts, the metal demand is going to grow. One of the primary factors driving silver's potential is its increasing industrial demand. Silver's unique properties, particularly its excellent conductivity, make it essential in various growing industries.

Electronics and Semiconductor Industry

The electronics sector, especially the semiconductor industry, is a significant consumer of silver. According to industry projections, the semiconductor market is expected to reach a trillion-dollar valuation by 2030. Silver is extensively used in various aspects of semiconductor manufacturing, including reflow, component connections, interconnects, and bonding wire, especially in memory products.

When you think about electronic markets in general, consumer electronics, data centers, disk drives, automotive electronics, optic electronics, MEMS and sensors, there are some overlaps in these categories. Semiconductor is the most obvious one to focus on, but there's silver in all those different electronics areas."

Solar PV: A Bright Spot for Silver

Another major growth area for silver is in solar photovoltaic (PV) cells. 232 million troy ounces of silver are currently going into the PVs; an astonishing statistic. The demand for silver in solar PV will continue growing as the world shifts towards renewable energy sources. The world will not change its focus to less reliance on fossil fuels. That phenomenon is going to continue throughout our lifetimes and beyond. Investors often consider the gold-silver ratio an indicator of potential price movements. Historically, this ratio averaged around 60, meaning it took about 60 ounces of silver to buy one ounce of gold. However, in recent years, this ratio has widened to around 80. This divergence could suggest that silver is undervalued relative to gold, potentially offering investors an opportunity. As the industrial demand for silver continues to grow, there's a possibility that this ratio could narrow, leading to higher silver prices.

Recycling: A Future Source of Supply?

While recycling is often seen as a potential source of supply for precious metals, silver faces unique challenges in this area. Recycling silver from electronic devices like iPhones or laptops is difficult and often not economically viable at current prices.

However, recycling efforts could become more substantial if silver prices reached $50 or $60 per troy ounce. There's potential for recycling numbers in electronics to double, but given the current supply deficits, even a significant increase in recycling might not dramatically affect the overall market dynamics.

Like other precious metals, silver prices can be influenced by monetary policies, particularly the Federal Reserve. Interest rate cuts could benefit silver prices: If the FED cuts rates in September, it will be a win for the precious metals complex in general, but it will be a bigger win for silver. The reasoning is that lower interest rates typically make non-yielding assets like precious metals more attractive to investors.

Silver vs. Gold: Central Bank Holdings

One notable difference between silver and gold is how central banks treat them. While they often hold significant gold reserves as a store of value, they typically don't hold silver similarly. When you look at precious metals, gold is lucky in that it is also bought by central banks and held as a reserve asset. Silver, not so much. Hence, central banks look at Silver as a strong metal on the investment side but more of an industrial metal. This difference in central bank treatment could create opportunities for private investors in the silver market.

While past performance does not indicate future results, the current market dynamics and future projections for silver present an intriguing case for investors. The metal's dual role as an industrial commodity and investment asset, coupled with growing demand from emerging technologies, could drive price appreciation in the coming years. However, as with any investment, investors must conduct their due diligence and consider their financial goals and risk tolerance before making investment decisions.

The Investment Thesis for Silver

• Industrial Demand Growth: The increasing use in electronics, solar PV, and other emerging technologies could drive demand higher.
• Potential Supply Constraints: Limited recycling and by product nature of most silver production could lead to supply shortages.
• Monetary Policy Sensitivity: Potential Federal Reserve rate cuts could benefit silver prices.
• Undervaluation Potential: The widened gold-silver ratio suggests silver might be undervalued relative to gold.
• Portfolio Diversification: Silver's dual nature as industrial and precious metal offers unique diversification benefits.

Actionable Advice

• Consider allocating a portion of your portfolio to silver as part of a diversified investment strategy.
• Research silver-backed ETFs or physical silver for direct exposure.
• Monitor upcoming Silver Institute reports for in-depth market insights.
• Keep an eye on industrial demand trends, particularly in electronics and renewable energy sectors.
• Be prepared for potential volatility, as silver prices can be influenced by both industrial and investment factors.

Silver presents a unique investment opportunity due to its dual role as an industrial commodity and precious metal. The growing demand from electronics and renewable energy sectors, particularly solar PV, is expected to drive silver consumption higher in the coming years. While challenges exist, such as limited recycling capabilities, the overall outlook for silver appears positive. Investors should consider silver's potential for portfolio diversification and possible price appreciation, while also being mindful of the metal's volatility and the various factors that can influence its price.

Silver Companies That Stand Out

Vizsla Silver (NYSE:VZLA) (TSXV:VZLA) has released an impressive Preliminary Economic Assessment (PEA) for its Panuco project in Mexico, showcasing exceptional economic figures. The project boasts an 85.7% after-tax IRR and a $1.14 billion NPV, with a low initial capex of $224 million. The PEA prioritizes early cash flow from high-grade material at the Copala vein, resulting in a remarkable 9-month payback period. The company plans to fast-track development, aiming for the first silver production by 2027. Vizsla will skip the pre-feasibility study and move directly to a feasibility study in the second half of 2024. The project's potential extends beyond the PEA, with less than 10% of the overall veins in the district explored so far. With $40 million in cash and potential warrant exercises, Vizsla is well-funded through the feasibility study stage. The company is also working on listing its royalty spinco, Vizsla Royalties, which is expected to be completed by early fall. Investors should note Vizsla's strong position in the silver market. Within the next three years, it has the potential to become one of the world's largest single-asset silver producers.