Markets
Are the best days of silver yet to come?
Summary
- The future of energy is shifting, and silver is at the forefront of this revolution. With its essential role in technologies like IoT and solar energy, is silver is poised for growth?
Efforts to clean up the environment, promote green energy and conserve resources received a big push after the covid-19 outbreak. The focus shifted to renewable energy.
Many nations have taken steps to curtail the sale of automobiles powered by fossil fuels as early as 2030 and have committed to switching to solar and/or wind power to make the Earth more sustainable for future generations.
While the 9/11 attacks triggered rapid developments in online video conferencing, the pandemic was a far bigger disruptive event for humanity, requiring even bigger technological advances like the Internet of Things (IoT).
As the saying goes, necessity is the mother of invention.
The demand-supply equations for raw materials or commodities have changed irreversibly. Markets, being advanced discounting mechanisms, understood that very well and started re-pricing natural resources accordingly.
The future is (almost) here!
If you thought Tesla Inc.’s self-driving cars were futuristic, wait for what lies in store. With the IoT, you will be able to leave your office in a self-driving car, instruct it with voice commands to switch on your hot water geyser at home, heat the pizza in the microwave and switch on your air conditioner before you reach home. This will be made possible by faster internet protocols.
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That means rebalancing commodity consumption to make these futuristic ideas possible. The only exception was the Ukraine war, which took oil and gas markets by surprise in February 2022. Even then, the bullishness lasted for a mere five months. The oil-exporting nations are seeing the writing on the wall, too.
Who wins, who loses?
If fossil fuels are witnessing a fall in their share in the energy markets, what is gaining at their expense? Silver. This precious metal has the biggest potential in the global power markets as it is used in the power sector like no other metal.
You cannot manufacture photovoltaic cells (PVC) without silver. No silver, no solar energy.
Without silver, 5G smartphones and switching systems would be impossible to manufacture, and the IoT would be a mere pipe dream.
Pure silver conducts electricity far better than any other metal, and that makes it the ideal choice in the electronics and electrical industry. A 5% coating of silver on copper wires cuts down transmission and distribution losses in electrical grids by over 30%, according to a 2014 paper, Minimization of Power Losses in Transmission Lines, published inIOSR Journal of Electrical and Electronics Engineering.
Every electric vehicle (EV) needs 25-50 grams of silver, whereas every hybrid vehicle needs 18-34 grams, according to a Transparency Market Research Inc. report in 2023.
India is a founder member of the International Solar Alliance (ISA). Indian solar power parks are growing in size and India’s solar power generation capacity is the third highest in the world.
The country also offers tax breaks to urge citizens to install solar power cells on their roofs.
India, which is among the world’s largest consumers of silver, has a material impact on the its price.
India's imports in the first half of 2024 (4,554 tons) were equal to the imports in the entire 2023(3,625 tons), as per a report by Reuters. Annual demand for silver in India, is slated to double this year to 6,500 to 7,000 tonne compared to the previous year, the report said.
For more such in-depth analyses, read Profit Pulse.
Technical outlook
The monthly silver chart shows a vertical rally in price from April 2020 to August 2020. That was sheer panic-driven buying by investors who were taken aback by the global lockdowns.
A long period of price consolidation for 40 months followed. In April 2024 bulls stood up and flexed their muscles and have retained their initiative ever since. Unlike gold, which is trading at all-time high, silver still has a long way to go to reach its all-time high of $50 per ounce. Prices of silver are currently trading around $32.14 per ounce.
Veteran technical analysts know that buying on the first bullish breakout is not a great idea. Weaker hands invariably get eliminated with small gains, and a period of consolidation and/or accumulation followed by strong hands. The second breakout is the more powerful of the two. Price tends to accelerate faster in the second breakout.
Also Read: Will gold prices spike higher if a full-fledged war breaks out?
The best days of silver are still to come. Will the heady days of $50/ounce last seen in 1980 and 2011 ever be seen again? I think they will. But it may take a couple of years. If you can ignore the short-term volatility and stay put for a couple of years, buy silver.
A word of caution: Avoid buying silver in the derivatives segment. Financing (interest) costs for buying and holding silver are prohibitively high and can reach 20% per annum. Save these charges by buying in delivery and save yourself from mark-to-market (margin) calls.
Note: We have relied on data from Wikipedia, Reuters, Economic Times, Transparency Market Research and IOSR Journals throughout this article.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your investment advisor. This article is strictly for educative purposes only.
Vijay L. Bhambwani is the author of the first official commodities trading guide in India. He designs statistical and behavioural trading models for his family-owned prop trading outfit. He stays in South Mumbai and has been trading markets since 1986. He tweets at @vijaybhambwaniand has a video blogwww.youtube.com/vijaybhambwani
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