- We spoke about a possibility of a massive bull run in Silver slightly more than two years ago in our Samshot published on 21 December 2022. Since then Silver is up 41%. You will be surprised that silver has outpaced Nifty’s return in the same period which is up only 26%. But we are not done yet. We think Silver has much more steam left.
- Silver goes through a greed and fear cycle every 28 months. It tends to move up in greed phase and falls or consolidates in fear phase. The average greed phase returns for silver is 108% and fear phase returns is -3%.
- Silver entered the greed phase in January 2023 and will stay there till April 2025. While current phases returns are much lower than average, we believe that silver should be on your radar because of the following reasons:
- Weakness in Dollar is a major positive for silver. When the dollar weakens, it takes more dollars to buy the same amount of silver, making silver prices rise.
- There is a bearish head and shoulder forming on the Dollar index (DXY). If the dollar persists below 107 then chance of it hitting the 100 mark are high which shall be a major positive for silver and other precious metals.
- Silver (red line) and Dollar index (blue line) are inversely correlated. As dollar weakens silver strengthens. The bottom panel shows their correlation which is also negative most of the times. Thus, if the US dollar remains under pressure then it should be good news for Silver Bulls.
- Silver to Gold spread which is nothing but silver price divided by gold prices and expressed as a percentage. This percentage is currently trading near multi decadal lows of 1.11%. This means price of one ounce of silver is just 1.11% of one ounce of gold.
- This is extremely low and the only way for this ratio is to move up. This means silver prices needs to move up or gold needs to fall. We believe chances of former happening are high.
- Silver is a critical resource used for production of various products like Electric Vehicles and solar panels. According to BofA Global Research the balance of supply for silver will be negative in 2030. Demand outreaching supply is a perfect recipe for prices to shoot up.
- In some countries like Korea the demand for physical gold and silver bars is already running out of supply. The demand supply gap has forced Korean authorities to ban physical silver bar sales by banks.
- The silver lease market refers to the lending and borrowing of silver between central banks, financial institutions, miners, and industrial users. This market allows participants to borrow silver for a specific period while paying a leasing rate (interest) to the lender. The leasing rate for silver normally stays below 1% or even goes in negative when silver is in oversupply. The leasing rates have shot up to 8%. This is a classic case of a silver squeeze and perfect for a bull run in silver.
- Silver is a very volatile asset and trading it is not for the ones with weak hearts. Despite this we have tried to identify ranges and tried to make sense out of this chaos.
- Silver has traded in ranges since 2017. The bottom of the range was 33000 and top was 52000. Silver rallied almost 50% from the top end of the range and touched a high of 78000 in August 2020. It broke out of this range high in April 2024. If silver rallies by 50% again from the high of 78000 then we get an upside target of 117000 in the next 12 months.
- Now this might look outlandish but keep this in mind that international silver prices are still trading about 33% below their all-time high of 50$. It will take an upside of 50% from current levels of 33$ to touch 50$ mark. If USDINR rates remain the same then scope for upside in silver in Indian rupee terms is way beyond 117000.
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