Is silver gearing up for a major bull run?
The silver market is currently experiencing a significant deficit. In 2024, the global silver deficit is expected to jump 17% to a hefty 215.3 million ounces.
This growing imbalance between supply and demand is primarily fuelled by surging demand from industries like solar energy, coupled with increasingly tight supply.
The gold-to-silver ratio – the number of silver ounces needed to buy one ounce of gold – is also flashing a bullish signal for silver, as it currently sits at its highest point in over a decade (excluding the 2020 Covid-related anomaly). This suggests that silver might be undervalued compared to gold and could foreshadow a rise in the price of silver.
While finding a solid silver investment can be a challenge, we've got our eyes on Sun Silver (ASX: SS1). This company is IPO-ing tomorrow, and we think it has all the hallmarks of a potential winner and should do well. A silver squeeze?
The growing imbalance between silver's soaring demand and its dwindling supply is creating a perfect storm that could send prices higher. Let's take a closer look at the key factors driving this potential silver surge:
Increasing demand: A major driver of surging silver demand is the booming solar energy sector. Silver is a critical component in solar panels, specifically in photovoltaic (PV) cells that convert sunlight into electricity. As the world increasingly turns to renewable energy sources, the demand for silver is set to skyrocket. Forecasts suggest that maintaining the current trajectory of solar panel production could require up to 20% of the annual silver supply by 2027. That's a massive chunk of the world's reserves.
Supply constraints: But here's the real kicker: We're not exactly swimming in silver. Only a small number of significant silver deposits remain in the world, and with the growing demand from the solar industry and other sectors, we could be facing a serious supply crunch. This looming shortage is a major factor that could drive up silver prices.
Solar installation globally is set to skyrocket. The gold-to-silver ratio: Another bullish indicator
This ratio, a key indicator of the relative value between these two precious metals, is currently flashing a signal that could mean big things for silver. The ratio tells us how many ounces of silver are needed to purchase a single ounce of gold.
A higher ratio often indicates that silver is undervalued compared to gold. Think of it like this: if the ratio is high, you're essentially getting more 'bang for your buck' with silver. This can be a tempting proposition for investors looking to capitalise on potential price appreciation.
Right now, the ratio is sitting at its highest point in over a decade (excluding the 2020 Covid-related anomaly), showing the most significant divergence between the valuations in relative terms.
Given the world economic landscape, our team believes silver has some catching up to do.
What this could means for silver
Mean reversion: When the gold-to-silver ratio reaches unusually high levels, it tends to revert to its historical average. A high ratio suggests that silver is undervalued relative to gold, which can lead to increased buying interest in silver as investors seek to capitalise on the perceived undervaluation, potentially driving up silver prices.
Increased investment demand: A high ratio often attracts investors who see silver as undervalued compared to gold. This increased demand can push silver prices higher, especially through investment vehicles like ETFs and physical silver purchases.
Sun Silver: A silver lining in the IPO market?
So, how can savvy investors capitalise on this potential silver surge? Well, we might just have stumbled upon a silver lining in tomorrow's IPO market: Sun Silver(ASX: SS1).
Source: www.sunsilver.com.au
This exciting new company is sitting on one of the largest undeveloped silver deposits in the world and is set to list tomorrow with a surprisingly modest $25 million valuation. And get this: it's located in Nevada, USA, a top-three mining jurisdiction globally.
While IPOs always carry some risk, we think Sun Silver has serious potential. Here are four reasons why we're bullish on SS1:
Significant mineral resource: Sun Silver isn't playing around. They've got a considerable inferred resource of 292 million ounces of silver equivalent at their Maverick Springs Property. This isn't just pocket change; it's a substantial resource that underpins the company's valuation and growth prospects. And they believe there is substantial potential for an upside in exploration.
Strategic location: The project is nestled in Nevada, USA, a mining-friendly jurisdiction with a stable political environment and established infrastructure. This not only makes operations smoother but also significantly reduces jurisdictional risk.
Zeroing in on growing markets: As discussed above, the solar market is poised for significant expansion. Investments in silver paste production, used in PV cells, place Sun Silver in a strategic position to benefit from the growing demand for solar technologies.
Cheap valuation: At a $25 million listing valuation, Sun Silver is very cheap in our team's eyes. Given the size of their resource and comparable deals in the sector, this seems like a seriously undervalued company. Could this be a takeover target right out of the gate?
Deals done for silver assets globally
In our team's view, SS1 presents a compelling case for investors seeking exposure to the silver market. Its massive resource, strategic location, and focus on the burgeoning solar market make it a company worth watching closely. And at a $25 million valuation, it could be one of the most intriguing IPOs we've seen in recent times. Of course, like any investment, it's important to consider your individual financial situation and risk tolerance before making any decisions.
There's a lot to like about silver in the short term; all the indicators are there for an upcoming bull run for those who want exposure to the precious metal. We're keeping a close eye on the gold-to-silver ratio – a key indicator of silver's future trajectory. If this ratio continues to extend, we think we're onto a winner here.
