Silver skyrocketed this month as the market realized the world will demand much more industrial metal than miners can provide. And yet, silver remains far below its 2011 high.
The gold/silver dropped over 16% in May, which means silver drastically outperformed gold. When gold/silver ratio moves, it tends to move fast. Investors who strategically positioned in silver earlier this year now have the opportunity to compound their ounces.
Copper is telling the same story – up 29% since February.
Copper’s importance cannot be overstated, as it plays a vital role in nearly every electronic device we use today, from personal computers to wind turbines to industrial machinery. The global energy transition is expected to double copper demand by 2035, with major contributions from the US, China, Europe, and India.
Why are copper and silver rising?
China, the world’s largest importer of copper, recently announced a plan to issue 1 trillion yuan (approximately $138 billion US) in ultra-long bonds aimed at infrastructure investment, which will dial up demand for industrial metals used in construction and manufacturing.
Miners the world over have struggled to meet surging demand, creating a tight market for silver, copper, and other metals. Socio-political issues and environmental challenges at major copper mines, particularly in Chile and Peru, have led to notable production cutbacks. Major silver-producing countries like Mexico have also been reducing output.
Silver is still undervalued
Even with silver’s remarkable performance this year, the metal would need to rise an additional 56% to reach its previous all-time high of $50, set in April 2011.
As precious metals bull markets go, this one is just getting started. Both gold and silver are severely undervalued compared to the money supply and the stock market, based on historical averages. It is refreshing to see the metals find their legs. This year serves as a reminder to investors that multi-year periods of stagnation are the price we pay for explosive periods like one we are experiencing now.
