Cassiar Gold Corp. (TSXV: GLDC, OTCQX: CGLCF)
Revitalizing the Cassiar Gold District in British Columbia, Canada
Over the past week, gold price continued to hold above $2,500 per ounce under pressure from profit-taking, showing further upward momentum as a Fed interest rate cut in September is imminent.
With rise in gold prices, silver prices broke through $30 per ounce last week and are up 28 per cent year-to-date, outpacing the 23 per cent year-to-date rise in gold prices.
The gold-silver ratio is a key measure of the relative value of gold and silver. According to Investopedia, in the 20th century, the average ratio of gold to silver was 47:1. In the 21st century, the ratio has been between 50:1 and 70:1 for most of the time, peaking at 104.98:1 in 2020, with a low of 35:1 in 2011.
Industry insiders point out that at a median gold-silver ratio of 80:1, a gold price of $2,300 implies a silver price of $28.75. If the gold price reaches $2,500 (which it has now), maintaining the same ratio means the silver price should be $31.25. When silver breaks out later this year or next year, the price target for silver will not just be $29 or $31, but $35 or higher.
It’s worth pointing out that when the precious metal rallied in 2020, against a backdrop of falling interest rates to zero, quantitative easing and general market panic, silver had risen twice as much as gold. From January to December 2020, the price of silver rose 43 per cent, while gold rose just 20.8 per cent. Earlier this year, when the price of gold topped $2,000 an ounce, the price of silver rose 39 per cent at one point.
John Ciampaglia, chief executive officer of Sprott Asset Management, said that while gold has hit record highs this year, silver is still undervalued. It’s mind-boggling that gold has surpassed $2,500 while silver is still below $30. Clearly, silver is still far from its 2010 highs and should be capable of returning to highs around $50 over time.
Some analysts have pointed out that the reason why silver has failed to maintain a steady bullish momentum in the current market environment is because it is more sensitive to the global economy. While lower interest rates favour silver as a monetary metal, the threat of an economic slowdown may keep investors cautious. Most of silver’s value comes from industrial demand.
A report written by Oxford Economics found that demand for silver in three areas: industrial applications, jewellery production and silversmithing is expected to grow by 42% between 2023 and 2033.
In May, a report by the International Energy Agency said that global investment in solar photovoltaic manufacturing more than doubled last year to about $80 billion, accounting for about 40 per cent of global investment in clean energy technology manufacturing.
Sprott predicts that by 2030, demand for silver from solar panel manufacturers, particularly in China, will increase by nearly 170 per cent to about 273 million ounces, or one-fifth of total silver demand.
Western media have recently reported on a phenomenon where China is hoarding silver and jacking up the price in order to gain access to more silver resources. Data shows that silver trading volumes on the Shanghai Metal Exchange have recently spiked dramatically and that prices are about 10 per cent higher than on Western exchanges.
Why is China jacking up the price of silver? Because silver is necessary for many manufacturing processes, from electronics to solar panels. Bloomberg reports that China’s silver imports hit a three-year high of 390 tonnes in December and 340 tonnes in April, compared with a five-year monthly average of 310 tonnes. net silver imports exceeded 400 tonnes in June and July.
China is also stockpiling solar panels, with about 80 per cent of the world’s solar panels now produced in China. In addition to China, India is also importing large amounts of silver from the West in recent years. India recently cut taxes on silver imports, further increasing demand for silver.
According to the Jerusalem Post, analysts have warned that growing demand for silver, coupled with limited supply, could lead to a ‘silver squeeze’ similar to the one in 1980. If investors begin to panic and rush to buy silver, the price could skyrocket.
Silver prices are expected to rise further in the coming months, driven by favourable macroeconomic factors and strong demand fundamentals, UBS analysts said in a report released on Monday.
A weaker U.S. dollar, improved sentiment in financial markets, and record high gold prices have all contributed to the recent modest rebound in silver prices. UBS analysts recommend that long-term investors consider increasing their exposure to silver, with a target price range of $36-$38 per ounce.
