Senior Analyst, Freeport Strategic Opportunities
I held a 1,000-ounce silver bar in my hands once. Fresh from the furnace. Still warm to the touch.
It happened at a mine deep in the Mexico mountains. What I learned there explains why silver is coiled like a spring right now.
While gold has surged 36% in the past year, silver has barely moved. It’s up only 3.7%.
But history tells us something big is coming.
Gold and silver have always moved together. Gold moves, silver follows.
During previous gold bull markets, silver outperformed gold. On average, it surges 414% during gold’s bull markets.
We haven’t seen that happen yet in this current cycle. It’s led investors to think silver’s dead.
But I know something most don’t. Something that could hand you triple-digit gains if you position yourself now.
So in today’s Navigator, I’ll share my insights and show you how to get ready for a massive surge in silver.
Gold’s Little Cousin Is About to Shine
Often, the best way to truly understand how the price of an asset like silver moves is to walk a silver mine. That’s what I did in 2018.
A group of us hopped around from one Mexican mine site to another on a twin engine propeller plane with tiny seats and no air conditioning.
It was worth it for two reasons.
First, holding a massive silver bar in your hand feels good.
But the biggest takeaway from this trip was the better understanding I gained of just what it takes to mine an ounce of silver out of the ground.
Silver mining is hard. It’s costly. And its price per ounce is volatile. That’s because it’s considered more of an industrial metal today than in years past.
Silver is a great conductor of electricity. So you’ll find it in everything from solar panels to your smartphone.
According to The Silver Institute, industrial demand is silver’s largest market, making up about 58% of all silver demand today.
And demand continues to grow. A decade ago, industrial demand for silver was only 45%.
By comparison, silver bars and coins account for only 17% of annual silver use.
So silver is at the whims of demand for high-tech electronics and industrial applications. When that demand is low, silver’s price reflects it.
The supply side of this equation is another factor that moves the metal’s price.
In most years, the balance of how much silver is mined versus how much is needed is about even. But for the last few years, we’ve seen much less supply than demand.
Silver is in a years-long structural deficit!
When you mine less silver than is needed for several years, it eventually filters down to price. This is economics 101.
That hasn’t happened… yet.
Silver is typically a byproduct of mining for other metals.
That means simply mining more silver to address the supply constraints isn’t as easy as flipping a switch.
All of this is to say: Silver is in for a monster rally when the realities of the current supply-demand imbalance hit home.
The question isn’t if. It’s when…
It’s All in The Details
During periods of weakness in the precious metals markets, silver tends to fall further than gold. Then, once it starts to move higher, it zooms.
One way to see this is through the gold-to-silver ratio.
On average, gold has traded at 62.5 times the price of silver over the last 50 years. When it gets too far above that average, we can expect silver to outperform.
Taking a closer look at a previous gold rally shows us exactly how it may work this time.
From November 2018 until August 2020, gold rose 68%. Silver, on the other hand, rose 110% over the same period.
But it took its time to get moving.
That may be what’s happening with silver today.
So the best thing you can do is to buy into the coming rally, then be patient and wait for silver to play catch up.
Of course, buying a lot of physical silver isn’t practical.
You pay a premium to the dealer. You have to transport it. You have to store it.
Who wants that headache?
Luckily, I have a better way for you to invest in the coming silver boom.
An Easier Way to Buy Silver
When it comes to silver, you want to position for its volatile run in the best, most liquid way possible.
You can buy stock of a pure-play silver miner, but that’s tough.
The largest silver miner by far is Mexico’s Fresnillo. Last year, it produced 56.3 million ounces of silver. After that, it’s Poland’s KGHM Polska Miedź at around 46 million ounces.
The problem is, Fresnillo’s primary listing isn’t on the U.S. exchanges. It does have a U.S. listing, but the volume of shares traded each day on average is far too low for most investors to buy into.
Only about 10,000 shares of the U.S. listing trade each day. That’s about $145,000 worth of stock.
KGHM Polska Miedź’s U.S. listing is even less traded. It trades only 75 shares per day on average. That’s about $2,500 worth of stock.
Compare that to Newmont (NEM), the largest gold miner in the world. On average, nearly 10 million shares trade hands every day. That’s $529 million worth of shares.
So buying the largest silver miners isn’t really an option.
Most other silver mining companies are far too volatile to own. It’s not uncommon to see swings of 50% or more in either direction on little or no news.
Instead, consider the iShares Silver Trust (SLV).
SLV is an exchange-traded fund (ETF). It tracks the price of silver and allows investors the chance to “own” real silver ounces without the headaches.
That’s because SLV does all of that for you. It buys – or sells – silver ounces depending on investor demand. It stores that silver in its vaults in the U.S. and in London. And the fee it charges investors to do this is just 0.5%.
In fact, that 0.5% fee is far less than the premium you would pay today to own silver bars or coins.
It gives you pure exposure to silver without the problems of your typical silver mining company.
Consider adding SLV to your portfolio today. Then sit back and watch silver do its thing…
P.S. Remember, every investment comes with risk, so while there is a high likelihood that silver will follow the same pattern it has for decades, do not invest more than you can afford to lose.