This story isn’t for the day trader looking to cash out with a 50-point move in silver based on what gold’s doing. There are charts and projections here, but they aren’t exactly to help with nimble position-taking.
No, our aim is to assist those who wish to see silver beyond the world of gold—where it reigns as the number one metal for electrical and thermal conductivity. In that world, silver is the “real gold”, enabling a green economy of solar panels that will light up and power homes and buildings, and serving as a conduit for electric vehicle batteries, just to name a few.
In Friday’s trade, the spot price of silver hit three-week highs at $26.015 an ounce after tracking a breakout in spot gold which pierced $1,770 the first time since Feb. 26.
Sunil Kumar Dixit of SK Dixit Charting in Kolkata, India, said the weekly chart setup for spot silver gives a “strong bullish outlook”.
“Prices are positioned on the right side of important 5-week Exponential Moving Average of $25.57 and 10-week EMA of $25.72. Middle Bollinger Band is supportive at $25.87.”
“Silver is trading above the 50% level of fibonacci retracement at $25.87, thus next the target is seen at the 61.8% Fibonacci level of $26.80, as long as 38.2% Fibonacci level at 24.80 holds with a weekly close as significant support.”
Technically, that sounds superior. Yet on a daily basis, there’s nothing spectacular about these sort of silver moves that come in lockstep with gold.
Discerning Investor Needs To Look Beyond Gold
What the discerning investor in silver needs to look for are the longer-term demand drivers for silver. And those are in renewable energies, including solar.
Rhona O’Connell, head of EMEA/Asia analysis at metals advisory StoneX Group, observed in a note after Thursday’s market settlement that silver’s fortunes appear wedded to gold for the immediate, foreseeable future.
“When gold is not showing a discernible trend, silver tends to revert to its industrial character, but over the past quarter it has danced largely to gold’s tune.”
That said, she noted that lively industrial activity had been developing in silver with prices at below $25.
“A key here is electrification. Silver has the highest electrical (and thermal) conductivity of all metals and solar cells plus electric cars are driving demand, while supply remains largely price-inelastic.”
She also noted that the gold/silver ratio—a simple measure of the number of ounces of silver that are required to purchase one ounce of gold—has risen over the past quarter, as it would in a bear phase, but is now running into resistance just above 70/1. “Since mid-2020, it has been contracting as the improving industrial outlook has kept silver more resilient than gold.”
And nowhere is the industrial emphasis on silver greater than in the Green New Deal of President Joseph Biden.
Biden, Silver And The Green New Deal
Peter Krauth, an op-ed writer for bullion trader Kitco, observed in an article in December that there were “some big reasons why Biden could become silver’s best friend”.
Since his election win in November, the president has announced some of the most ambitious plans ever for the greening of America. Biden is targeting net-zero emissions by 2050 under a so-called Green New Deal. To jump start those goals, he intends to spend $1.7 trillion in federal money, and leverage an additional $5 trillion in private sector and local investment funds.
US Trade Representative Katherine Tai, addressing the World Trade Organization on Thursday, underscored the importance of the electric vehicle component to Biden’s clean energy plan.
Citing an example of her own work, Tai said she went out of her way to help resolve a trade dispute between SK Innovation and LG Energy Solutions, two US-based South Korean EV battery makers. Tai added:
“We need a strong, diversified, and resilient supply chain of electric vehicle batteries in America to meet the growing global demand and to expand US manufacturing of clean energy vehicles. This settlement puts the country in a stronger position to drive innovation and growth of clean energy technology.”
The Washington-based Silver Institute noted in a study that society had still much to learn about silver’s role in the ongoing green revolution.
We share some of the institute’s findings to shed light on the energy makeover the world might see in the coming years, and how silver could position itself in that transition:
The cost of installing and providing solar photovoltaic (PV) has fallen rapidly relative to other electrical energy sources over the past two decades, even with factoring out the effects of solar subsidies and taxes/penalties on nonrenewable energy sources.
Solar energy uptake will grow most significantly in developing regions during the next decade, led by major policy-driven investments in domestic solar infrastructure within China and India. Solar energy uptake is expected to continue growing strongly within the United States, despite some short-term uncertainty associated with recent tariffs on solar PV imports. Within Europe, solar PV uptake is expected to decelerate through 2030, although renewable energy sources will continue to account for a growing share of regional electricity generation.
Although solar power will account for a growing share of global electricity generation, the amount of silver used per photovoltaic cell is expected to continue declining. Thrifting, which is widely utilized across the full metals spectrum, has already brought the average silver loadings per generated kilowatt hour down to 28.6 grams in 2017, driven mainly by continued advancements in dual printing processes, reductions in wafer thickness and finger width and, to a lesser extent, replacement of silver with other materials like copper. Silver loadings in solar PV are expected to continue declining through 2030.
In the transportation sector, spurred on by overwhelming policy support, as well as falling costs and greater understanding of the benefits of electric vehicles, new energy vehicles (NEVs), such as battery electric vehicles, (BEV), and plug-in hybrids (PHEVs) will account for an ever-increasing proportion of global vehicle sales. Within vehicles, silver is primarily used in electrical contacts, which connect electrical components with one another. The automotive battery market remains a commercially untapped opportunity for silver-zinc batteries. Due to cost pressures, however, current trends indicate that automakers and their suppliers will continue to invest in lithium ion technology with nominal investment in silver-bearing battery materials. The incremental growth in silver loadings within new energy vehicles will have a meaningful impact on future demand for silver from the automotive segment.
The value proposition of wireless inductive charging ports and stations will increase substantially if the successful development and mainstream adoption of autonomous vehicles succeed. At the moment, inductive charging for the transportation sector is gaining traction in electric buses used by public transportation agencies, and there are signs that the next major market for this technology will be electric trucks used by regional freight companies. The adoption of inductive charging stations by the household market to provide meaningful growth in silver demand only over the long-term, as plug-in charging remains the favored technology for the current generation of EV owners.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.