Why I’m Buying Silver - and Why You Should, Too

by Sean Brodrick
why-i-am-buying-silver-and-you-should-too

I’m buying physical silver again - coins and bars. And you should, too. That is, if you’re using your head for anything other than a hat rack.

Actually... wait! DON’T buy silver. I’m not done buying it yet. I don’t want you snatching the scarce metal right out of my hand...

Well, how about this: Let me tell you why I’m buying silver. Then you can make up your own mind.

First off...

Sales Are Soaring

Have you seen what’s going on at the U.S. Mint? It sold 14.26 million ounces of American Eagle silver coins in the third quarter. That’s the most in 29 years!

The Mint can’t meet demand. First it ran out of coins in July. (Yep, simply ran out.) Now, it is carefully limiting sales through quotas. This, despite the fact that at the U.S. Mint in West Point, New York - where the American Eagle is made - the plant is spinning out new coins on three shifts around the clock.

In fact, the U.S. Mint sold more than 433 metric tons of silver in the third quarter. That’s more than the world’s No. 1 silver producer, Mexico, produces in a month - 424 tons!

And this isn’t just happening in the U.S. The Canadian Mint has also limited sales. And have you seen what’s happened in Australia?

Perth Mint Silver Sales 2014 to Present chart

Hi-Ho Silver! Sales of silver coins and minted bars at the Perth Mint jumped to 3.35 million ounces in September. That’s more than four times what was sold in August - a new record.

But it gets better...

Silver Prices Haven’t Caught Up... Yet!

I’m not talking about retail prices, which are a bit of a sore point with me. (I know it’s a seller’s market, but the premiums we’re paying now are ridiculous. If you see any online sales with low premiums - from reputable dealers - leave a note in the comments. I’m sure fellow readers will appreciate it.)

I’m talking about the price of silver on the exchanges. Let’s look at a chart of the iShares Silver Trust (NYSE: SLV), which tracks the price movement of silver pretty closely...

iShares Silver Trust SLV 2009 to Present chart

You can see that prices have been in a downtrend since 2011. But you can also see that bearish momentum is running out of steam. In fact, there is a disconnect between price action and momentum. Of course, there’s no guarantee, but this is the kind of disconnect you often see before a reversal or breakout.

So why hasn’t the COMEX price gone up when sales are soaring? I’m thinking of a five-syllable word, and I’ll spot you the first letter: “M.” (The last letter is “N.”)

Heck, I just told you a few weeks back about all the big banks settling cases for manipulation of the precious metals markets. I’m no conspiracy theorist - this is happening. And that’s why I say prices haven’t caught up with silver sales yet.

But I believe a breakout is coming.

Another Reason? China

Retail sales of gold and silver jewelry are soaring again in China. Up 17.4% in August, year over year. However, there’s an even greater source of a potential surge in Chinese demand...

I’m talking about solar power.

Roughly 20 grams of silver (in the form of silver paste) are used in each silicon solar panel. To make 1 gigawatt (GW) of solar power, you need 80 metric tons of silver, or 2.57 million troy ounces of silver.

Stay with me... only a little more math.

Global solar photovoltaic (PV) installations are expected to grow 28% this year.

That growth will continue into 2016, when module shipments are expected to exceed 2015 shipments by 10%.

According to estimates, China will install 17 GW of solar panels this year. That will require 43.72 million troy ounces of silver.

Does that sound like a lot? Globally, Mercom Capital says we should see 57.4 GW of solar power installed this year. That should require about 4,592 metric tons of silver - or 147.63 million troy ounces.

Grams of Silver Used per Solar Panel chart

There are 1 million grams per metric ton, so 80 million grams equals 80 metric tons. Eighty metric tons equals 2.57 million troy ounces. Therefore...

57.4 GW of solar power generation will require 147.63 million troy ounces of silver.

And the amount of silver required this year is 28% higher than 2014, when solar used about 106 million troy ounces.

So, do you see how solar’s hunger for silver is ramping up?

And yet, global mine production of silver was 877 million ounces last year (mine production is roughly 82% of total supply). Sure, there’s more supply from hedging and scrap. But almost all of it is used up - by jewelry, investments in coins and bars, silverware, and especially industrial fabrications.

If it weren’t for ETFs selling silver last year, the market would have been in deficit to the tune of 4.9 million ounces. As it was, ETF selling allowed a surplus of only 2.6 million ounces last year.

That would cover only a small portion of the surge in solar’s demand for silver this year. And next year? The demand for silver in solar panels is forecast to be even higher - 65 GW.

Annual and Cumulative PD Demand 2002 to 2020 chartDoing the math, that’s 167 million troy ounces of silver required to power 65 GW of standard solar panels.

We are rapidly approaching the point where demand for silver from the solar industry is going to overwhelm available supply.

Sure, there are stockpiles. But not much.

Sure, there is recycling.

Sure, there is substitution. (We’ll probably see a lot of that when silver prices soar.)

Either solar panel production has to grind to a halt - and considering that China has smog thick enough to eat, that seems unlikely - or the price of silver has to move higher.

Potentially much, much higher.

Now, you might say, “But Sean, they’ll manipulate prices lower, just like they always do.”

My response: Let ‘em! Let ‘em keep silver as cheap as they can for as long as they can. Heck, let’s see a bear raid that pushes silver under $14. I’ll back up the truck and buy. But prices cannot stay this low for much longer.

And that’s why I’m buying silver now. As I said at the top, though, you can make up your own mind.

Or use your head for a hat rack. That’s a good look for some folks.

Good investing,

Sean

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Our “First” Choice When It Comes to Solar Stocks

As Sean mentioned, the growth potential for solar is massive. And his Oxford Resource Explorer co-author, David Fessler, certainly agrees. For years, Dave has been banging the drum for solar. Just recently, he recommended First Solar (Nasdaq: FSLR) to readers of his Advanced Energy Strategist research service. Here’s an excerpt from his write-up:

“What do I like about First Solar? First Solar is a solar energy company on a tear. After making a mere $5 million of net income in Q1 2015, it turned in impressive results the following quarter.

“Back on August 4, 2015, First Solar released its Q2 2015 results. Total sales were $896 million, and it made $94.5 million of net income. The company blew estimates out of the park. Revenue expectations were $790 million. Expected earnings per share were $0.49 compared to actual earnings of $0.93 per share.

“What a difference a year makes. In Q2 2014, the company had net income of $5 million, or $0.04 earnings per share. Why the big difference? It’s simply solar’s torrid growth...

“Since 2008, worldwide installation of solar PV systems has increased by a factor of 10. Ten years ago, no one predicted that level of growth for solar. But as I predicted, technology continued to evolve, and manufacturing costs dropped continually over the period. As a result, solar is now close to grid parity cost and even exceeds it in some areas.

“There’s no reason to think that solar installations are going to slow. Right now, solar still provides only about 1% of the world’s electricity. That leaves plenty of opportunity for growth. That’s exactly what First Solar is doing. The company is nearly sold-out for the next year and a half. I expect it will continue to beat estimates at least through the end of this year, and likely beyond.”

- Alexander Moschina with David Fessler

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