Silver: Back to a Buy?

Silver prices have been depressed recently - but Dr. Bauer believes that the trend will change soon - and that now is the time to buy silver. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌   Silver: Back to a Buy? Dear Reader, Lately, silver speculators have been rather pessimistic - but that could soon change. Silver Holds its Support Level Silver prices have maintained a support level at $22 per ounce. The next lowest support level would be in the area around $20, and then $18. However, the silver market is already approaching oversold territory - and a recovery seems imminent.   This is also evident in the behavior of speculators (blue line in the lowest chart). They’re currently quite pessimistic - which can be a contrarian bullish indicator in its own right. A trend reversal is likely in the next few weeks at the latest. Why the Behavior of Speculators in the Silver Market is so Important The big speculators are mainly so-called trend followers. This means that they follow a trend and usually end up strengthening it. Until recently, there was a downward trend - one which pushed silver into the oversold range. You can see it in the relative rarity of net long positions among speculators. But this trend should reverse soon, and speculators should soon start buying again. A look at the past (marked in green) shows that such a trend change by speculators always leads to a nice price recovery after a downward run. Silver Demand Increases Significantly The fundamentals of the silver market also suggest a recovery ahead. Global silver demand is expected to grow by a staggering 15% this year compared to the previous year. (It’s worth mentioning that demand in 2020 was down 10% compared to 2019 due to the pandemic, but demand is still expected to surpass those 2019 levels this year). Two factors stand out in particular. First, industrial demand is expected to rise to a new all-time high of 524 million ounces of silver this year. Second, demand from the solar industry, which uses a silver-based paste to coat photovoltaic cells, is also expected to rise to a new all-time high of 105 million ounces in 2021. In sum, global stimulus programs and investments in green energy are putting bullish pressure on silver.   Investors Should not be Underestimated Thanks to the massive increase in demand, the Silver Institute expects a market deficit of 126.7 million ounces of silver in 2021. That might sound like a lot, but it would actually represent a 50% drop from last year's massive supply-related deficit (caused by mine closures due to the pandemic). Personally, however, I believe that the institute’s analysts are underestimating investor demand for this year. Here, they expect a decline of 55% compared to 2020. I estimate, on the other hand, that a change in trend among speculators will bring investors back into silver this year. This should provide additional support to the market. Conclusion I would definitely recommend holding physical silver. Personally, I’m taking advantage of the current low prices to buy more silver coins. The basic idea behind this is to hold physical silver alongside gold for hedging and asset diversification. This is an especially important hedge in an inflationary environment which is awash in economic stimulus. 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