Will Silver Outperform Gold in 2021?

When considering buying commodity penny stocks, gold and silver are often on the top of investors’ lists. And it’s easy to see why considering that precious metals are not only a good portfolio diversifier, but also an excellent hedge against inflation.

Unlike gold, though, the price of silver swings between its perceived role as a store of value and its role in industrial processes. For this reason, it’s often more volatile than gold. As a result, investors can often use this volatility to generate healthy returns in the shorter term, while less volatility makes for an excellent long-term investment.

Investors should then take this into account when considering investing in gold or silver penny stocks. But now the question is, will silver outperform gold in 2021? Here, we’ll look at this question in more detail.

Silver Uses

Although silver has long been used to manufacture coins, ornaments, and jewellery, it has various other uses. Some of these include:

• More than 36 million ounces of silver are used every year in the auto manufacturing industry. Here, for instance, it’s used in coating the contacts of every electrical connection in a modern car.
• Silver is present in almost any electronic device. This is because it has the highest electrical and thermal conductivity of all metals. As such, manufacturers commonly use it in TV screens, switches, and circuit boards.
• Soldering and brazing. Without using silver in joining metals through soldering and brazing, these connections would not be as sturdy or electrically conductive as the original metals.
• Because silver is effective in fighting bacteria, it’s used in several medical applications. As such, it’s used in bandages, ointments, surgical tools, needles, stethoscopes, and linens.
• Water purification. As a result of its antibacterial properties, silver is common in water purifiers, where it prevents bacteria and algae from building up in the filter.

Silver Price Drivers

For any investor that is considering buying gold or silver penny stocks, it’s vital to know what drives the commodity’s price. By knowing this, investors will be able to judge better when to invest or when not to. This, ultimately, influences whether the investor will make a profit or suffer a loss when buying gold or silver penny stocks.

Here, the most critical drivers for the price of silver are:

• US dollar. Like with many other precious metals and commodities, silver is priced in US dollars. As such, when the US dollar price decreases, buyers of the metal will be able to buy more of it in their local currency. As silver then becomes less expensive, the demand for it rises. This brings about a price increase.
• US monetary policy. Higher bond yield rates reduce the attractiveness of holding assets like gold and silver. So, when the US implements higher interest rates, the demand for silver will go down.
• Production of other metals. With only 30% of silver output coming from primary silver mines and the remainder emerging as a by-product of the mining of other metals, its supply will reduce when the production of other metals slows. As a result of reduced supply, demand can increase and bring about a price increase.
• Mining costs. As mining costs increase, miners will often cut back on production to save costs. This reduces supply which can lead to an increase in price.
• Investment demand. It’s estimated that, in 2014, about 18% of the demand for new silver came from physical coins and bars. As investors invest more in the metal, the demand for it goes up and increases the price.
• Industrial demand. Industrial demand accounts for about 55% of silver use. So, when industrial processes require more silver, the demand goes up, and so does the price.
• Jewellery demand. Because it’s the most reflective of any precious metal and doesn’t tarnish easily, silver is very durable for jewelry. As a result, jewelry demand can cause an increase in silver prices.
• Scrap silver. Silver is recyclable, and when prices are low, silver processors often hold back on selling scrap silver. This leads to the supply going down, and often, prices going up.
• Silver plays a crucial role in China’s industrial demand. As a result, when this demand increases, the price of silver will increase.

Will It Outperform Gold in 2021?

In light of the above, should investors considering invest buy gold or silver penny stocks? In other words, will silver outperform gold in 2021, or will it be the other way around?

Demand for physical silver coins and bars is exploding. In fact, physical investment in silver is expected to reach a six-year high in 2021. Although the surging market during February that drove silver prices to an eight-year high has abated, there’s still much interest.

Also, valuations are currently relatively cheap, and measures are being taken globally to meet the surge in demand. For example, the amount of silver stored in vaults in London has increased by 11%, while vaults are being built and opened in both the US and Singapore to store silver.

Demand for coins and bars is booming, fueled in part by a Reddit-induced buying frenzy in February that drove prices to an eight-year high. While the fervor has abated, retail interest is still elevated, valuations are relatively cheap and measures are being taken to meet the surge in demand. The amount of silver stored in vaults in London rose 11% in March to a record, according to the London Bullion Market Association.

 

Spot silver, currently trading around $25 an ounce, is forecast by Citigroup Inc. to peak at $28 to $30 in the second half, aided by “still solid” investment demand and an end to physical de-stocking in China and India. The lender sees the price averaging $27.30 this year. Morgan Stanley, meanwhile sees the metal averaging $25 an ounce in 2021, up 22% from last year.

In addition to the investor demand, there will also be increased industrial demand due to silver’s crucial role in energy transition, where it’s used for applications like solar energy, 5G networks, and automotive applications. As a result, silver’s price will increase during 2021 and beat gold due to its cheaper valuation and strong investment demand.

For any investor considering gold or penny stocks, this is good news. The increase in the silver price means an increase in stock prices as manufacturers become more profitable.

The Bottom Line

Investors who want to invest in gold or silver penny stocks must know what the precious metals are used for and what drives their prices. Ultimately, this enables them to determine the market conditions, supply, and demand and decide on the best investment opportunities at the right time.

Hopefully, this post was helpful in giving investors this information relating to silver. For more information about gold or silver penny stocks, visit our website or contact us for more details.

How to play this

One company that stands to gain from price rise in Silver is Etruscus Resources (CSE:ETR). Etruscus Resources is sitting on a polymetallic deposit containing Gold, Silver, Copper, Lead and Zinc. Recent exploration has shown incredibly high grade grab-samples (including more than 7,000 g/t Silver!!), interested 5.24% Copper, and identified 20 areas of interest within proximity to the “red-line”, with geological overlap with existing producers (some of which are monster mines). We recently published an update report on Etruscus which resulted in a market value of $1.50 using highly conservative estimates, and numerous assumptions of dilution. With the recent acquisition of GT Gold by Newmont, we remain bullish on ETR given that it is trading at a discount of almost 400%.

Another company that we remain highly bullish on is Nexus Gold (TSXV:NXS). While not a silver play, Nexus is predominantly a Gold play and with Gold and Silver both moving upwards, investors in silver penny stocks will be remiss to ignore multibagger returns on a Gold stock. NXS has a massive portfolio of 11 assets, with district scale properties totalling 750 km sq in West Africa, and 6 properties in Canada. The company is worth 24 c using very conservative estimates, and is trading at a mere 6 c as of today, being the cheapest by market capitalization compared to peers in their 2 active properties. The company also has an active project (McKenzie project) in the Red Lake district in Canada, which is home to Canada’s most recent producer. With assays pending, the company is very active and constantly building shareholder value.