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While silver prices are currently lagging behind other metals, like copper, which are rallying in a post-COVID economic recovery boom, the precious metal has been enjoying a remarkable uptick since April 2020 and is still hovering near its 52-week high. The rapid price increase over the last year likely is tied to the volatility of the market as silver, like gold, is often used as a store-of-value asset by investors looking to hedge against unstable markets.
Even so, the trend is likely to continue even as the market stabilizes as increased demand for silver from the renewable energy industry reveals that silver is far more than a store-of-value asset. Here are some trends to watch for in the silver market this year.
Renewable Tech Sector Drives a Silver Demand that Could Outstrip Supply
As billions of dollars are poured into sustainable tech, demand for silver — which is used in many electrical components and is a key material in solar panels — is rapidly approaching levels beyond what existing supplies can meet.
The combined total demand for silver is expected to exceed 1 billion ounces this year, with about half of that coming from industrial demand to manufacture tech with silver components. While that’s still below the estimated supply produced from mining and silver scrap, 2021 will see the narrowest gap between supply and demand since 2015. With the gap narrowing and the renewable tech sector continuing to expand and drive more demand, a deficit is imminent, and suppliers will be enjoying a seller’s market.
The Silver Squeeze Reveals Challenges of Trading Precious Metals
When Reddit traders flocked to silver this past February in an effort to launch another squeeze against hedge funds, the short-lived results revealed important differences between investing in stock and investing in precious metals. For one, silver is a substantially larger market at $1.4 trillion than the $1.4 billion market cap of GameStop, Reddit traders’ previous squeeze target. Moving the precious metal’s price significantly and for any extended period of time is no easy feat — as Reddit traders realized when silver’s price had normalized within a day.
Silver also doesn’t trade quite like stocks on the exchange. Not only is it a physical commodity subject to shortages, it’s also largely traded off exchange, meaning most silver is bought and sold directly between 2 parties — not traded online.
As an investor who’s more interested in profiting on the price movements of silver, rather than actually holding silver, finding a workaround is key to overcoming these challenges of trading silver.
One option is derivatives-like options contracts that can be bought and sold before their expiration date to avoid ever holding the underlying commodity. These can be risky, however, so it’s important to do plenty of research into how options work and develop a solid options trading strategy before you start.
Another route that doesn’t involve the same risks as options trading and doesn’t require learning about a whole new investment product is trading stock in companies that supply silver. Mining companies with silver mines, for example, offer an opportunity to invest in the precious metals space without any of the limitations that come with investing in actual precious metals.
Major mining companies like Pan American Silver Corp. (NASDAQ: PAAS) or Rio Tinto (OTCMKTS: RTNTF) can be useful either as direct investments or as companies to track when looking for higher growth opportunities as these more established companies tend to partner with or invest in junior mining companies that show promise.
Speaking of junior mining companies, these smaller companies can fill a similar role as small cap stocks in other sectors. That is, they carry higher risk, but they also come with a potential for explosive returns if their exploration activity pans out and becomes an active mine.
American Pacific Mining (OTCQB: USGDF), for example, is kicking off a new drilling at its Gooseberry Silver-Gold project in Nevada this year after 3D modeling last year revealed promising signs of deposits at the site. An influx of cash from the company’s newest strategic investor Mike Gentile will fund the new drilling. While it’s still early in the process, it’s projects like this that growth investors with an interest in precious metals should be keeping an eye on as they look for opportunities in the space.
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