Silver's Outperformance of Major Indices: A Clear Sign of the Next Big Investment Opportunity Since our December 2022 prediction, Silver has surged an impressive 41%, outpacing even the Nifty's 26% return during the same period. This is the beginning of a much larger silver bull run that could deliver substantial returns to investors, particularly those with a long-term investment horizon, through 2025.
Our analysis reveals that Silver typically follows a predictable 28-month cycle between the greed and fear phases. During greed phases, silver prices surge (averaging 108% returns), while fear phases result in minor corrections or consolidation periods (averaging -3% returns).
Silver entered its current greed phase in January 2023, with this bullish cycle expected to continue until April 2025. While returns have been below the historical average, several key factors suggest an imminent acceleration.
The Dollar Connection: Why Currency Weakness Strengthens Silver
The weakening US dollar is a significant catalyst for Silver's potential surge. The well-established inverse correlation between the precious metal and the Dollar in financial markets means that when the Dollar weakens, more dollars are required to purchase the same amount of Silver, effectively driving up silver prices in dollar terms.
Technical analysis reveals a bearish head and shoulders pattern forming on the Dollar Index (DXY). Should the Dollar remain below the critical 107 level, we anticipate a potential decline toward 100—a development that would substantially benefit Silver and other precious metals.
The correlation between Silver (red line) and the Dollar Index (blue line) has historically been negative, as shown in the chart above. The bottom panel demonstrates this inverse relationship, with the correlation coefficient remaining negative most of the time. This pattern suggests that continued dollar weakness should translate directly into silver strength.
Historical Undervaluation: Silver-to-Gold Ratio at Multi-Decade Lows
The silver-to-gold spread—calculated by dividing silver prices by gold prices and expressing it as a percentage—currently trades near multi-decade lows of just 1.11%. This extreme undervaluation, which is historically unsustainable, should instil confidence in investors about the potential for silver price appreciation.
This extreme undervaluation is historically unsustainable. For this ratio to normalize, silver prices must rise, or gold prices must fall. Given the macroeconomic environment and fundamental demand drivers, silver price appreciation is the more likely outcome.
Supply-Demand Imbalance: The Perfect Recipe for Price Explosion
Silver isn't just a shiny precious metal; it's crucial in making electric vehicles, solar panels, and other green technologies. According to Bank of America Global Research, the demand for silver is projected to outstrip its supply by 2030, which could result in a serious supply shortage.
This supply-demand imbalance is already manifested in some markets. In South Korea, for example, banks have forced authorities to ban physical silver bar sales due to overwhelming demand and exhausting available supply.
The silver lease market provides another compelling indicator of tightening supply. Typically, silver leasing rates remain below 1% (or even turn negative during oversupply periods). However, these rates have recently surged to 8%—a classic sign of a silver squeeze that typically precedes major price rallies.
Technical Analysis
Silver broke out of this range again in April 2024. If history repeats with another 50% rally from the previous high of 78,000, we project an upside target of 117,000 within the next 12 months.
This projection may seem ambitious, but international silver prices currently trade about 33% below their all-time high of $50. Reaching this historic benchmark would require a 50% increase of around $33 from current levels. The potential Upside in the Indian Rupee could exceed 117,000 if the USD/INR Exchange rates remain stable.
Conclusion
Silver can be quite an adventure, and that might not be ideal for those who like to keep things on the safer side. However, when you look at the mix of factors at play—like a weaker dollar, Silver being historically undervalued compared to gold, increasing demand from industries, and some supply issues—it seems like we might be gearing up for a primary bull run. If you can handle the volatility, now could be a fantastic time to jump in and take advantage of SSilver's potential growth through 2025. Just remember, when diving into these more volatile investments, it's crucial to manage your position size and keep an eye on your risk
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