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The surge in precious metal prices earlier this year has clearly caught the attention of investors. Silver ETFs and miners have all enjoyed a spectacular rally in recent months. Even with silver now trading at prices not seen since late 2014, there are a number of important indicators that the lustrous white metal has further to rally, making now the time to add some silver to investment portfolios.
Now what?
Firstly, demand for silver is significantly outstripping supply.
According to the Silver Institute, this has created a supply deficit of 112 million ounces during 2015, which was the third straight year where a supply deficit occurred. The Institute believes that another supply deficit of silver will occur again in 2016.
These deficits can be attributed to the growing demand for silver, particularly the explosion in demand for silver jewelry, coins, and bars, coupled with a lack of investment in exploration and mine development.
Supply constraints will help to backstop silver prices at their current levels.
Secondly, the industrial demand for silver continues to expand.
Silver, because of its properties as the most electrically conductive metal, has become a key material used in the fabrication of a range of electronic components. These include flexible touch screens, LEDs, and interposers for stacking semi-conductors, all of which are vital parts used in the manufacture of a range of electronic devices, such as laptops and smartphones, that are in high demand.
Then there is silver’s role in the fabrication of the photovoltaic cells, which form the solar arrays that are used to generate electricity. Solar has become one of the most popular means of generating renewable electricity, and there continues to be considerable investment in the industry because a number of governments globally have established aggressive solar energy targets.
In fact, analysts estimate that global installed solar capacity will almost triple to 756 gigawatts by 2025. It is estimated that 2.8 million ounces of silver is required to construct sufficient photovoltaic cells to generate one gigawatt electricity, and this expansion in global solar capacity will require 1.4 billion ounces of silver.
More importantly, unlike other forms of industrial demand, silver demand in solar power is resistant to downturns in the economic cycle because of the growing pressures to combat climate change.
Finally, economic uncertainty is creating considerable demand for safe-haven assets.
Like gold, Silver’s primary value is as a safe-haven asset. This means that it will retain its value or even appreciate during times of economic uncertainty and turbulence. This characteristic makes it a useful hedge against the market volatility that economic and geopolitical uncertainty creates.
The growing demand for silver has triggered massive inflows into silver ETFs, which has caused the largest, iShares Silver Trust ETF (NYSE:SLV), to gain 41% for the year to date.
So what?
According to a range of analysts, silver is now in the midst of a new bull market, which means that higher prices are certainly here to stay for the foreseeable future. Importantly, each of the factors discussed will not only support higher silver prices but help to propel the lustrous white metal ever higher. This will be a boon for silver miners.
One of the best low-risk means of gaining leveraged exposure to silver is with precious metals streamer Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW). As a streamer, it doesn’t operate mines and is not exposed to exploration and operational risk. This also means it has significantly lower expenses than silver miners, which will see its margins and profitability grow at a far greater rate than silver miners.
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