Seriously undervalued? analysts chanted: Silver prices could soar soon!

According to many analysts,Silver is so undervalued that at $22 an ounce it is "unforgivably low".They are bullish on medium-term silver prices, expecting them to climb to $50 to $100 an ounce in the next two to five years.

But there is an important question, namely, when will we finally start to see this adjustment?

Silver languishes in 2023. So far this year, the price of gold has risen by more than 4%, while the price of silver has fallen by more than 5%.

In addition,The price gap between silver and gold is widening, with the current gold-silver ratio exceeding 84.That means it would take more than 84 ounces of silver to buy 1 ounce of goldThe average modern gold-silver ratio is between 40 and 50.

From a historical perspective,It always returns to that average.But it is worth noting that it is always particularly "violent" when it reverts to the mean. For example, the ratio plummeted to 30 in 2011 and even fell below 20 in 1979.

When the gold-silver ratio is so large, silver not only outperforms gold, but also rises sharply in a short period of time. This has happened four times since January 2000.As the chart below shows, the rebound in silver prices is often quick and powerful.

As the Federal Reserve raises interest rates to combat price inflation, silver faces the same headwinds as gold. The Fed's monetary policy has strengthened the dollar, while sticky inflation has unnerved investors about expectations of more rate hikes. That has weighed on both gold and silver prices.

Due to the economic slowdown,Silver is facing more bearish sentiment. The decline in consumer electronics demand has affected industrial demand for silver and goldColin Hamilton, commodities analyst at BMO Capital Markets, pointed out that while the global economy performed better than expected in the face of monetary tightening, "it's almost entirely down to the resilience of the services economy, and manufacturing is clearly feeling the pinch".

This has a particularly serious impact on silver becauseIndustrial demand accounts for more than 50% of total silver demand, while demand for gold accounts for only about 7%。

But in the long run, the supply and demand dynamics for silver are bullish. In fact,The supply shortage is already imminent.

The supply shortage of silver is "imminent"!

Analysts believe that the growing demand for silver in the solar industry in the coming years couldSeverely squeezing supply, and current silver prices do not reflect a possible shortage。

A tightening in silver supply may have already occurred.Despite record silver demand in all categories in 2022, supply was flat and mine production fell 0.6%. This resulted in a 237.70 million ounces in 2022supply deficit, the second consecutive year of deficits. The Silver Institute said this "It could be the largest deficit in history". The report also states,"The total deficit of the previous two years easily offset the accumulated surplus of the past 11 years”。

This trend is not expected to reverse anytime soon. Gregor Gregersen, CEO of Silver Bullion Pte Ltd., recently pointed out that,Due to a lack of investment, silver mine production has declined。

Since it can take more than 10 years to start new mining operations, it is not possible to increase production significantly in the short termSo,The increase in silver prices will not lead to an increase in mine production for a long time。

In addition, due to the promotion of green energy in various countries, the demand for silver in the market may also increase significantly.

Due to its excellent electrical conductivity,Silver is an important material for the production of solar panelsAlthough each solar panel uses only a small amount of silver, the demand for silver will add up as the market for solar panels grows exponentially each year.

According to a research paper by scientists at the University of New South Wales,By 2027, solar manufacturers' demand for silver could exceed the current annual supply by 20%.。By 2050, solar panel production will use 85% to 98% of current global silver reserves.。

Although fears of an economic downturn typically dampen industrial demand for silver, due to the support of governments around the world,The photovoltaic industry and the "green energy" industry are largely unaffected by the economic downturnDue to the urgent need to address climate change, investment in solar and other green energy technologies is unlikely to decrease even in a downturn.

Analysts emphasize that...Although silver is an industrial metal, it is fundamentally a currencyAlthough silver is more volatile in the short termOver time, silver tends to follow the trend of goldAnalysts said:

"If you're inclined to think the Fed is going to lose the fight against inflation, you should be bullish on both gold and silver."

To some extent,Investors will have to reckon with shrinking silver supply and rising demand, as well as the Fed's inability to bring inflation back to its 2 per cent target. When that happens, silver prices could soar.The analysts concluded:

"Given the dynamics of supply and demand, the distorted gold-silver ratio and the possibility that the Fed won't beat inflation, $22 looks like a good buying opportunity."