Silver Is Significantly Underpriced Given The Looming Supply Shortage
The comments below are an edited and abridged synopsis of an article by Michael Maharrey
Given the current macroeconomic environment and the supply and demand dynamics, silver is significantly undervalued.
The bullish case for silver typically revolves around price inflation. There are certainly reasons to think inflation is stickier than governments want to admit and that the Federal Reserve isn’t going to be able to win the inflation fight. That is bullish for both silver and gold.
But not many in the mainstream are talking about the looming supply shortage in the silver market.
In fact, the growing demand for silver in the solar power industry will likely put a significant squeeze on supply in the coming years, and the current price of silver does not reflect the likely shortages.
There is already a squeeze on silver. While demand set records in every category in 2022, supply was flat with mine output falling by 0.6%. This resulted in a 237.7-million-ounce market deficit in 2022.
It was the second consecutive annual deficit. The Silver Institute called it “possibly the most significant deficit on record.” It also noted that “the combined shortfalls of the previous two years comfortably offset the cumulative surpluses of the last 11 years.”
This trend is not expected to reverse, and silver mine production has fallen due to a lack of investment.
Meanwhile, the demand for solar power is rising, which will drive demand for silver significantly higher.
Recession worries would typically dampen industrial demand for silver, but the photovoltaic industry is essentially recession-proof due to support from governments around the world.
All the above signals a rapid increase in silver demand in an environment of constrained supply. Higher demand without a corresponding increase in supply will lead to increasing prices.
Silver isn’t currently priced for this dynamic. In fact, silver is significantly undervalued compared to gold.
Now is the time to buy while silver is effectively on sale.