The precious metals have been on fire recently.
Even when compared to the Fed-induced S&P 500 returns over the last five years, gold has massively outperformed it.
In 2020 alone, the precious metal appreciated by 35%, while the S&P 500 is barely breaking even.
But there has been another asset, with even more stellar returns—silver.
Since the March lows, it went up by 140%, from $11.7 per ounce to $29.9 per ounce.
The question on everyone’s mind now is whether this is it, or are the gains going to continue even higher?
Let’s find out.
Fundamentals Behind Silver’s Explosive Returns
To get an idea where silver could move in the future, you must first understand how it got to where it is today.
Silver, like gold, has seen a sharp increase in investment demand over the last couple of years.
The global economy was slowing down, and geopolitical tensions were intensifying.
Precious metals, being a risk-off asset, benefit in such an environment. This is because investors see them as a safe store of value. Especially compared to investments that are linked to economic performance, such as stocks.
Moreover, the precious metals prices remained steady in the 2014-2018 period, while that of every other asset ballooned, making them comparatively cheap.
And while these factors were enough to spring the precious metals back into action, what sent them parabolic in 2020 was the Fed.
Once Chairman Powell and his colleagues turned the money printing machines on max, the precious metals took off like rockets.
Everyone knows that injecting more money into the system creates inflation, even though the Fed wants you to believe otherwise.
And considering that there’s a limited amount of precious metals in the world, they’re a perfect hedge for such reckless behavior.
Silver And Gold. Same Asset Class, Different Dynamics
Not all things are created equal, and so is the case with precious metals.
Where silver and gold differ, is that silver has more industrial uses.
It is the most conductive metal on earth and is being used in solar panels, batteries, semiconductors, and many more. Because of this property, many investors prefer it to gold as a risk-diversifier.
But this also makes silver more volatile, since it is partially dependent on the global business cycle, with industrial demand falling sharply during economic contractions.
This means that silver performs best right after recessions. That is when you start seeing first signs of economic recovery, but risks, and investment appetite for risk-off investments, still remain high.
Precisely the type of environment we’re in today.
Silver Price Target For 2020
As long as the above-mentioned factors don’t change, which I don’t see happening for at least another six months, the price of silver will keep rising.
How far? If you ask me… a lot.
First of all, while gold has broken to new all-time highs, the price of silver would have to reach $51 per ounce to get there. Given that today, it’s trading at about $29 per ounce, that’s another 76% increase.
Moreover, gold to silver ratio, how many ounces of silver you can buy with one ounce of gold, tells a similar story.
The last time we were in such an environment, during and after the Great Recession, the gold to silver ratio fell from 80 to 30.
We’re seeing the same happening now, except that so far, it has fallen from 114 to only 75. Meaning, there’s still a long way to go.
All and all, this is extremely bullish for silver, even with price gaining as much as it did, which is why I recommend buying it.
I wouldn’t be surprised to see silver reach $50 per ounce by the end of the year, and $100 per once in 2021.
How To Invest In Silver
If you’re investing in silver, first, I would recommend you also invest in gold.
As I mentioned, silver is quite volatile, so holding some gold as well is a prudent way to diversify your holdings.
The way I allocate is by investing 50% more money in gold than silver. An even safer approach would be to invest twice as much in gold as in silver. As you saw earlier, both are benefiting from the same dynamics and should go much higher from here.
The most straightforward way to invest in silver is by buying a silver ETF. I recommend you check the iShares Silver Trust (SLV). It holds physical silver stored in vaults equal to the value of its shares. So basically, it’s like you own silver bars, except that somebody else is storing them for you.
Another interesting solution is buying stocks of precious metals miners. These days, all the big ones are mining both gold and silver. So you get an added benefit of diversification across both assets this way.
Furthermore, these companies are making massive profits this year, and they intend to pay much of it to their shareholders in the form of dividends. Which means that unlike investing in physical precious metals, where you’re only benefiting from the price appreciation, here you also collect a yield.
I include my top three miner picks in my True Retirement Wealth portfolio, which you can check out after subscribing here. Suffice it to say they’re one of the best performers on the list.
Good investing,
Leon Wilfan
