Silver could add some luster to portfolios in the new year.
Silver prices have surged this year—and more gains are likely.
Analysts see the white metal rising to $30 an ounce in the next year from the current $23.36, and even higher given the large-scale stimulus needed to revive economies. It would be a continuation of the trend this year, which has led to the surge in gold and silver prices as investors hunt for havens.
Gold grabs most of the attention, but silver acts in much the same way as its yellow cousin, namely as a hedge against a decline in the dollar. That has been the case this year, with bigger fiscal spending and near-zero interest rates as a result of monetary policy pressuring the dollar.
The $13 billion-asset iShares Silver Trust exchange-traded fund (ticker: SLV) is up 30% this year and 36% in the past 12 months. Silver is also important in manufacturing, with prices rising when the economic recovery leads to industrial demand.
Goldman Sach’s Mikhail Sprogis explained in a note last month that silver is a key component in the solar industry, which is poised for big growth. Solar investments account for 18% of silver industrial demand and about 10% of overall demand for the metal. Sprogis has a $30 price target on it.
President-elect Joseph Biden wants to install 500 million solar panels over the next five years. Goldman estimates solar installation will jump 50% from 2019 to 2023. Installations are also expected to increase overseas, especially in China.
Granted, higher silver prices might encourage solar-panel makers to find ways to use the metal more sparingly—as is already evident, Sprogis says. Newer panels have about 25% less silver by content, which will tamp down demand growth but not eliminate it, he says.
“All in all, over the next three years solar should boost silver total industrial demand by 2% in the base case and by 9% in a bull case.” If the bull case materializes, silver could see a 10% price boost, Sprogis says.