$30 Silver Is Quite a Bargain

Silver enjoyed a moment in the spotlight when the Reddit Raiders turned their attention to the white metal. The online investors weren’t able to pull off a short-squeeze in the silver market, but we’ve said all along that there are fundamental reasons to be bullish on silver.  Given the supply and demand dynamics coupled with the prospect of inflation, $30 silver is likely quite a bargain.

In fact, a portfolio manager at Crescat Capital told Kitco News that sub-30 dollar silver “is the most attractive macro-economic asset in the world.”

Tavi Costa is also bullish on gold, primarily due to central banks flooding the world with easy money and unprecedented stimulus. He thinks this excessive liquidity will push inflation pressure even higher.

Investors are already starting to see that inflation is out there and that’s why I like hard-assets so much. Gold looks really cheap. Silver looks really, really cheap. Oil looks really cheap as well. It is just ridiculous people that are staying on the sidelines in this environment.”

We’re already seeing signs of inflationary pressure in rising commodity prices. As Peter Schiff pointed out in a recent podcast, oil closed over $59 a barrel on Friday, a post-COVID high. And oil isn’t the only commodity charting soaring prices. Lumber prices hit an all-time record high Friday, rising 10% last week alone. They have more than doubled since February 2020. Agricultural commodities and other metals such as copper and platinum are also on the rise.

Along with the impact of monetary policy, Costa likes the prospects for silver based on a likely rebound in industrial demand. The Silver Institute expects silver demand to increase by about 11% in 2021. Even if the economy doesn’t rebound to the extent many project, silver will likely still get a demand boost with the global push toward green energy particularly in the solar energy sector and the automotive industry with the growing electrification of vehicles.

Costa also sees the likelihood of a silver supply squeeze.

I just see a lot of supply constraint issues. I’m building models, looking at cap-ex cycles. No one is spending any money on exploration. … We are seeing a culmination of a fundamentally cheap story along with the supply problem of the whole industry. Along with the massive central bank balance sheets that are here to stay.”

Mine output fell sharply in 2020.  Production was projected to fall by 6.3% to about 780.1 million ounces.  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.

In a tweet, Costa said the party is just getting started.

Truly remarkable what’s going on with the precious metals industry.
 
Silver:
 
+48% in 2020
+4% YTD
 
If only you knew how much leverage high-quality gold/silver explorers have to rising metal prices.
 
The party hasn’t even started.

— Otavio (Tavi) Costa (@TaviCosta) February 13, 2021