Silver’s scarcity factor is helping it catch up to gold’s record run

While gold prices have repeatedly set fresh record highs this year, silver has been rallying as well — with one analyst predicting that prices for the precious and industrial metal will reach $40 an ounce or more before the end of the year, as supplies continue to come up short of demand.

Fundamentally, silver “has all the right ingredients” for a “melt-up move,” said Peter Spina, president and founder of GoldSeek.com, a website that has provided investors with gold prices, research and information for nearly 30 years.

“As gold tears higher to new records, the buying pressures on silver grows, as does the fourth year of supply deficits,” he told MarketWatch. The Silver Institute forecasts 2024 total global silver supply at nearly 1.004 billion ounces, compared with total demand of 1.219 billion ounces, following supply deficits in 2021, 2022 and 2023.

On Monday, the December contract for silver futures SI00 SIZ24 climbed 66.1 cents, or 2%, to $33.895 an ounce on Comex. Based on the most active contract, prices are poised for their highest settlement since Nov. 29, 2012, according to Dow Jones Market Data. They are trading around 41% higher this year to date.

“Silver is making a major move now and it is going to get noticed by more investors and speculators,” said Spina. “This means to me that the next move higher in silver prices will be aggressive with $40-plus an ounce on the horizon, likely before year’s end.”

That would lift silver futures closer to their all-time settlement high of $48.70 from Jan. 17, 1980. Prices set an intraday record high at $50.36 on Jan. 18, 1980.

The climb in gold prices has taken center stage, climbing on Monday to a fresh all-time intraday high of $2,755.40 an ounce, and the yellow metal’s rise is making “silver look cheap,” Spina said.

December gold GC00 GCZ24 was at $2,736.40 an ounce in Monday dealings.

Read: Gold’s record-breaking run comes as stocks hit fresh highs. Is it too late for investors?

Also see: Gold may not reach a price ceiling anytime soon. Here’s why.

Silver has “lagged and frustrated many investors for a very long time,” Spina said. “[The] same goes with the gold and silver stocks, but the long period of frustration is meting away.”

Miners are a “screaming buy — their profit margins are exploding, their share prices [are] lagging,” he added, while “volumes are light” and the sector has gone unnoticed.

Read: Gold miners ETF on pace for highest close since 2020 even as U.S.s tock market falls

The Philadelphia Gold and Silver Index XAU, which tracks precious-metals mining companies traded on the Philadelphia Stock Exchange, has climbed over 30% this year.

The relative lag in silver prices and related stocks, however, means an “aggressive catch-up period is starting,” Spina said, noting that as he’s seen in the past, “years of frustration [can] flip in a blink of an eye.”

Gold and silver stocks “appear to be starting their melt-up stage, just as expected,” with silver prices breaking through a key resistance and the gold-silver ratio “crumbling,” he said. “This is when gains can come in viciously fast — when the years of frustrations can flip quickly.”

As of Monday, it would take nearly 81 ounces of silver to buy one ounce of gold. The average price ratio for the modern era stands at around 55 ounces of silver to one ounce of gold, according to CMC Markets. A higher ratio suggests that there may be an opportunity for silver prices to outperform gold.

Spina said the run-up in silver prices toward $40 or more represents more of a “monetary interest” rather than an indication about economic prospects.

Read: U.S. economy poised for somewhat slower growth, leading indicators signal

Silver is “following gold’s lead,” and investors are recognizing that the four-year structural supply deficit for silver is “one that will not resolve itself without higher prices,” he said.

Still, don’t be surprised if a move to $40-plus in silver “takes some dips along the way,” Spina added. “Volatility will be very high and there will be sharp pullbacks.”

For now, the lower $30s look like a “solid support floor” for prices, he said.

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