Saxo Bank projects silver will soar to a record $50 an ounce in 2021, powered by loose Federal Reserve monetary policy and a weak dollar, and turbocharged by surging demand for the white metal in the solar energy sector.
According to the Saxo Bank report, the “usual suspects” will continue to power silver upward, referring to the extraordinary monetary policy we’ve seen in response to the coronavirus pandemic in 2020.
Saxo analysts expect the US dollar to continue to weaken even as the pandemic eases with the rollout of a vaccine next year.
The vaccine has killed the virus, but not killed the debt that is still flushing around the world.”
This reflects Peter Schiff’s view that a vaccine can’t cure what ails the economy.
The problem is not really the fact that we have a disease, but that we’re addicted to the cure, which was cheap money and all this debt. And so now, it’s the addiction to the cure that’s the real problem. The disease doesn’t even matter anymore. Because even if we get rid of the disease, we’re still addicted to the cure. And the Fed can’t take away the cure without causing an even bigger problem than the initial disease that the cure was meant to cure because now the problem isn’t the disease.”
Saxo Bank also projects rising price inflation in 2021. The report predicts policymakers will be slow to respond to rising prices because they want to “offer maximum support for their still-recovering economies.”
With a Covid-19 vaccine in rapid roll-out by the middle of the year, the excessive liquidity and over-easy policy drives a powerful bid into any hard asset.”
This is bullish for both silver and gold.
Earlier this year, the Federal Reserve moved the goalposts to allow inflation to run hot. As Schiff noted at the time, by injecting so much stimulus into the economy in the past, the central bank has created a situation where it can never actually fight the inflation that it creates.
That’s why the Fed is now saying we’re going to let inflation run hotter – because they have no choice. It’s not because this is good for the economy. It’s not. It is necessary to keep the bubble from deflating.”
With the monetary fundamentals already looking strong for silver, the white metal will get a further boost from growing demand for applications related to the “green transformation,” particularly photovoltaic cells used in solar panel production. Saxo projects demand will outstrip supply.
In fact, a real silver supply crunch is on the cards in 2021, and it frustrates the full-throttle political support for solar energy investments under a Biden presidency, the European Green Deal, and China’s 2060 carbon-neutral goal, among other initiatives.”
Solar power generation is expected to nearly double by 2025 according to a report released last summer by the Silver Institute.
Silver possesses the lowest electrical resistance among all metals at standard temperatures. According to the report, “Potential substitute metals cannot match silver in terms of energy output per solar panel.”
Further, due to technical hurdles, non-silver PVs tend to be less reliable and have shorter lifespans, presenting serious issues for their widespread commercial development.”
Even if the global economy recovers more slowly than expected in the wake of the pandemic, green energy demand for silver will likely remain robust. Analysts expect many government stimulus plans will include funding for green initiatives.
On the supply side, silver mine output was hit hard by the pandemic. Production is projected to fall by 6.3% to about 780.1 million ounces in 2020. The big drop in silver output is largely a function of mine shutdowns due to coronavirus, but mine output was already trending down before the pandemic. Global mine production fell by 1.3% in 2019.
Long-term, Saxo Bank points out that more than half of mined silver supply is a by-product of zinc, lead and copper mining, “making it tough for miners to meet the surging excess proportional demand for silver.”
Silver is historically more volatile than gold because due to industrial demand, but the solar power industry should help steady overall industrial demand for the white metal.
Looking at the bigger picture, at its core, silver is a monetary metal and it tends to track with gold over time. The silver-gold ratio of over 76-to-1 tells us the white metal is still significantly undervalued compared to gold. History tells us silver will eventually close the gap, meaning either gold will drop or silver will rise. Given the economic dynamics and the current extraordinary monetary policy, a continued gold bull run seems more likely and silver will probably come along for the ride boosted by increasing industrial demand.