Gold has been the precious metals story over the last two years, overall. Beginning with an increase in trade-related worries that bubbled up toward the end of 2018, gold has shown steady strength since that time. From December 2018 through today, the yellow metal has grown roughly 57%.
But it’s silver that’s been the precious metals story of 2020. Famous for lurking quietly in gold’s shadow, silver made a big move and surged past gold in the second quarter of this year. The catalyst appears to have been the Federal Reserve’s announcement in late March that it would effectively do whatever is necessary in the form of accommodative monetary policy to keep the economy functional throughout the pandemic. As 2020 draws to a close, silver has appreciated 45% for the year, handily outdistancing gold’s still-impressive rise of 25%.
Accommodative monetary policy and generous fiscal policy have been in abundance this year. And as responsive as gold can be to each, silver has shown the capacity to be even more reactive. Silver’s profile as both a favored hedge against the effects of potential dollar debasement and an essential industrial metal makes it uniquely configured to benefit especially well from Fed quantitative easing (QE).
As it appears increasingly likely the current metals-favorable monetary and fiscal climate will persist into next year, one analyst is expecting silver to continue performing well in 2021. In a piece for Streetwise Reports succinctly titled “Buy Silver Now,” former portfolio manager and current precious metals analyst Peter Krauth says an ideal environment is forming now for silver that could see it have “another great year in 2021.” Krauth says anticipated dovish monetary policy will be the primary driver of silver next year. He also points to the current level of the gold-to-silver ratio as a basis for his expectation that silver will soar again in 2021.
Krauth: Look for Silver to “Flex Its Industrial-Metal Muscle” Next Year
Just two weeks ago, I detailed Saxo Bank’s recent self-described “outrageous prediction” that silver would double in price from present levels and reach $50 per ounce next year.I wrote at the time that given Saxo’s rationale for its prognostication – namely, the optimal silver environment expected to result from ongoing massive monetary and fiscal stimulus – I wasn’t sure the bank’s prediction was all that outrageous. As it turns out, Peter Krauth may not think it’s so outrageous, either.
Krauth does not address the Saxo prediction in his piece. But he is anticipating the same near-term global monetary and fiscal climate forecast by the global investment bank. Accordingly, Krauth thinks silver is on the verge of another banner year.
“Not only are central bank balance sheets exploding, but major economies are passing stimulus bills that, just a few years ago, would have been near-scandalous,” Krauth writes.
Referring to inflation as “the dark horse of 2021,” Krauth projects that “as vaccination rates climb and the visible effects of the pandemic subside…our wild rates of money printing will start to take effect. Currencies, in particular the U.S. dollar, are likely to weaken.”
Like Saxo, Krauth’s belief that 2021 will be a big year for silver stems from the metal’s coexisting potential benefits as an inflation hedge and industry-essential metal. In this case, the analyst sees silver’s value rising further because of both the inflation he’s forecasting next year and the expectation of increased industrial demand in a recovering global economy.
“Not only is silver demonstrating its ability to hedge against expected inflation, it’s also flexing its industrial-metal muscle,” Krauth says. “Fifty percent of silver is consumed in industry, plus 10% goes into solar technologies. Factor in exploding investment demand, and the metal’s outlook is robust.”
Current Gold-to-Silver Ratio Suggests More Big Silver Gains to Come, Says Krauth
Additionally, Krauth’s interpretation of both the current level and recent trends of the closely-watched gold-to-silver ratio suggest to the analyst that silver is poised to reap more big gains in 2021.
The gold-to-silver ratio measures how many ounces of silver can be purchased by one ounce of gold. The higher the ratio, the cheaper silver is relative to gold. Some analysts construe that a higher ratio further means that silver is undervalued, and therefore has a greater potential to strengthen.For perspective, note the figure has averaged around 60 over the last 20 years, and right now it’s around 73.
A pronounced drop in the ratio from previous highs has corresponded with significant increases in silver’s price. For example, when the ratio fell from 80 in November 2008 to 30 in April 2011, silver rose 400%. Even when the metric has fallen more modestly, the price of silver has strengthened noticeably. When the ratio fell from 80 to 66 from March 2016 through July 2016, silver jumped 36%. And this year, as the ratio has dropped from a March high of around 125 to its current level of 73, silver has surged roughly 110%.
Noting this year’s precipitous drop in the metric, Krauth says the gold-to-silver ratio has plenty of room to additionally sink in 2021.
“Typically, when the ratio runs up above 80 and reverses, it tends to run down to 50 or even lower,” Krauth writes. “Currently, the gold/silver ratio is near 73, and has been trending down. That’s what it does during precious metals bull markets. I think it has further to fall, even if gold moves higher, which is likely. As a result, I expect silver’s gains will easily outpace gold’s in 2021.”
Retirement Savers Who Look Past Silver Could Be Making a Costly Mistake
As an asset, silver has demonstrated the ability to “outshine” gold during notable precious metals bull markets. You might think that record would be well-known not only among metals enthusiasts but the retirement savings community, more generally.
And yet many who are in the market to buy metals frequently will look past silver altogether and focus entirely on gold. There are a lot of reasons for that, in my opinion. Part of it has to do with the fact that gold is known to be considerably scarcer than silver and, relatedly, silver’s monetary value is just a fraction of gold’s. I believe another reason why silver is more poorly regarded than gold simply has to do with what many see as its lower visual appeal.
But when we’re talking about the asset performance of silver, these factors are largely – if not entirely – irrelevant.
Gold’s rise during the years of the 2008 financial crisis certainly was impressive, but silver’s was even more impressive. From 2008 to 2011, gold climbed 160%. Over the same years, silver jumped 400% (which I referenced earlier in the discussion of the gold-to-silver ratio).
We again have seen silver top gold in the more recent energized period for precious metals. I previously mentioned that for all of the positive attention that accrued to gold for its 2020 showing, silver outperformed the yellow metal this year by nearly double. And if you evaluate silver’s showing side-by-side with gold’s from December 2018 through the present, you’ll find that silver has appreciated 76% to gold’s aforementioned 57%.
Some analysts – including Peter Krauth – expect to see silver continue to thrive into 2021. Whether or not that actually happens remains to be seen. But in light of the fact we are expecting to see a continuation of the same fiscal and monetary policies that drove silver in 2020, retirement savers might want to give some consideration to the prospect the metal is at the outset of another impressive year.