Silver in the year 2020 is up about 44% year-over-year, outperforming gold, platinum, and palladium. This feat is confirmation about the future path the monetary metal will be taking in 2021 and beyond.
Looking back at 2020
Silver regained its safe-haven status last year. The amount of silver purchased by the silver ETFs was around 350 million ounces of physical silver, an achievement unheard of until now. The silver market has not seen this kind of investment demand in decades.
Moreover, retail investment was rather substantial; in most cases, retail investors were willing to pay extremely high premiums to ensure that they could get their hands on physical silver again. This is a phenomenon that has not been seen since the 2008 financial crisis, where it lasted a few months. This time, it lasted for almost the entirety of the year.
Another event worth mentioning is the decrease in silver supply as health concerns took a central role in the minds of all for 2020, with a total of 7% decrease in global mining of silver. . Demand for jewelry, photography, and even silverware felt the effects of the pandemic ripple.
Onwards and upwards
With the tumultuous year of 2020 and the hardship experienced by global economies, as a realist, I cannot say with certainty that a recovery is on the horizon. It is for that reason that safe-haven assets will likely see continued demand.
Investment demand was up last year, a trend that I believe will continue to unfold in 2021. The silver supply appears to have the potential to continue to tighten, especially for the industrial users, as investment demand will be so robust, squeezing the industrial players and pushing them to stockpile silver, an interesting development considering the popular approach to acquire silver for industrial purposes has been on a just-in-time basis.
If there are to be another 350 million ounces of silver funded by the ETFs in 2021, that would leave very little silver available for the solar, electric vehicles, laptops, and electronic devices that have become essential products in a technologically-driven world.
Moreover, the commodity cycle appears to finally be breaking to the upside, now at an all-time low on an inflation-adjusted basis has been seen these past few years. What seems clearer now in the vision for 2021 is the collective movement away from the things that we want, and towards the things that we need. Even as unemployment numbers steadily decrease and people get their jobs back, disposable income will be curtailed, as most have learned the importance of saving money and people work to pay off their debts.
On the effects of a vaccine...
Markets are psychology, more than anything else. If the psychology changes and the global consensus leans towards a return to normalcy, then there's nothing to say that this idea of economic growth will not spread through the economic system rapidly. However, with countries around the world failing to meet vaccine targets even at this early stage, the slow roll-out is not helping those chances.
Regardless of economic conditions, it is likely that silver will see a rise in demand as there will be a bigger push than ever before towards green energy, which means solar panels, EVs, and battery technology, as the world works towards more environmentally friendly practices.
With many more applications in the new economy, which I discussed in detail in a recent interview with David Lin of Kitco News, industrial demand for silver will make up for any losses it may suffer in jewelry and silverware. Make sure to watch the full interview here.
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