‘Wily beast’ Silver to Surge in 2021

Posted | 09/12/2020 / Views | 2313
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The economic effects of 2020 on 2021 must be one of the most perplexing questions before investors in some time.  A look at global sharemarkets would have you believe that everyone thinks the future is awesome.  Overnight the ratio of put to call options on the CBOE futures market for the S&P500 saw the lowest print since 2000 just before the dot.com crash and globally the sharemarket market cap breached $100 trillion for the first time ever.  We have reached ‘peak awesome’.

‘Wily beast’ Silver to Surge in 2021

In stark and perplexing contrast, we have global negative yielding debt levels at all time high levels of over $17 trillion.  So bad do these largely institutional investors think the future is, that they have bought $17 trillion of bonds that they KNOW will return a negative yield.  You only do that if you think that is a fair price to pay to maintain your capital, or you think things will actually get ‘more negative’ and the price of their bond (and hence capital) goes up.  $17 trillion…

‘Wily beast’ Silver to Surge in 2021

The back drop to this are calls for the Great Reset which we wrote to here and other paradigm shifts to try whilst we are all questioning the status quo amid ‘unprecedented everything’.  

So how does one assess 2021 in such context?  As a precursor, Saxo Bank’s Chief Investment Officer just wrote:

“For the 2021 batch of Outrageous Predictions, the Covid-19 pandemic and the painful US Election cycle have brought what might have seemed a distant future a quantum leap closer, accelerating nearly every underlying social and technological super-trend. Simply put, the traumas of 2020 mean that in 2021, the future is now.

We’ve seen the fastest bear market and recovery in history, as well as central bank balance sheets and fiscal deficits exploding at an unprecedented pace. So our not-so-outrageous prediction is that 2021 will bring the beginning of a reality check to the idea that “extend and pretend” can stretch to infinity and beyond, even as markets have been pricing in that very expectation.”

One prediction Saxo make for 2021 ties a few of these themes together in terms of central bank and government stimulus largesse and the dual likelihood of such stimulus being tied to green initiatives and a non-forced, but pandemic prompted awakening social conscience around climate change coming to the fore.  The “extend and pretend” policies simply must hit a wall of reality soon.  Whilst outcomes like UBI (universal basic income) or MMT (modern monetary theory) are becoming more and more likely, such tectonic shifts to extreme, almost communist, socialism will only come after this debt cycle reaches its nadir and we see rampant inflation or unseen levels of desperation to create it.  We touched on this last week here.  Saxo see silver in particular benefiting from these forces:

“Silver has always been a wily beast for investors due to its dual precious metal/industrial metal uses, and 2021 sees silver rising on both. That contrasts with 2011, when a proper bubble in silver developed on rank speculation linked to a tumbling US dollar and the Fed’s seemingly radical monetary policy of QE2 from late 2010. QE scary? How times have changed. 

2021 brings the usual suspects that power silver higher on its hard asset/precious metal side as the US dollar weakens, and as investors are faced with the harsh reality of no relief in sight from negative real interest rates. This is exacerbated as inflation suddenly jolts higher in 2021 and policymakers are slow to respond, wanting to offer maximum support for their still-recovering economies. With a Covid-19 vaccine in rapid roll-out by the middle of the year, the excessive liquidity and over-easy policy drives a powerful bid into any hard asset.

Turbocharging the rise in the silver price in 2021, even relative to gold, is the rapidly rising demand for silver in industrial applications, especially those driving the green transformation such as photovoltaic cells used in solar panel production. In fact, a real silver supply crunch is on the cards in 2021, and it frustrates the full throttle political support for solar energy investments under a Biden presidency, the European Green Deal, and China’s 2060 carbon neutral goal, among other initiatives. 

Another challenge on the supply side for silver is that more than half of mined silver supply is a by-product of zinc, lead and copper mining, making it tough for miners to meet the surging excess proportional demand for silver. 

Trade: Long silver as the price races to an all-time high of $50 per ounce in 2021.”

We wrote not long ago about the solar forces behind silver which you can read here.