(Kitco News) – There is a significant disconnect in the silver market between paper and physical bullion investment demand, and this is an environment where profits are made, according to a market analyst.
Silver appears to be building a solid bottom between $17 and $18 an ounce, and while markets may remain volatile in the short term, current prices represent long-term value, said Silver Stock newsletter founder Peter Krauth. Investor and author of a recently published book, The Great Silver Bull.
Krauth added that he sees $18 an ounce as strong long-term support for silverwhich represents the all-inclusive average sustaining costs for silver producers.
“When silver hits $18, you should definitely buy,” he said. I don’t see it going down for long, because that would further upset the supply and demand imbalance in the market,” he said in an interview with Kitco News.
Krauth’s bullish outlook for silver comes as the precious metal has come under heavy selling pressure for most of 2022 and has significantly underperformed gold as fears of recession weighed on industrial demand. Rising interest rates, pushing the US dollar to its highest level in 20 years
However, Krauth added that despite weak investment demand, silver’s fundamentals have not changed as the precious metal continues to be a vital part of the ongoing global transition to green energy. He added that the imbalance of supply and demand was acutely felt among physical investors forced to pay record premiums for bullion because there was not enough supply.
“Low investment demand doesn’t change the fundamentals of money. It just adds to the sharp disconnect and it’s in these types of markets that you find the best investment opportunities,” he said. -he declares. “We know from history and experience that when the silver market remediates and corrects, it happens very, very quickly.”
Krauth added that while investors have been disappointed with short-term price action this year, the precious metal has made impressive gains. He pointed out that from mid-2018 to mid-2019, silver was trading below $15 an ounce.
He added that while silver has been volatile since the COVID-19 pandemic, the average price for the past three years is above $22 an ounce, up nearly 40% from the previous three-year average in 2017. to 2019.
As investor interest ebbs and flows, Krauth noted that industrial demand continues to see steady growth. Analysts expect more than 100 million ounces of silver to be consumed in the solar energy sector this year.
“The world will not be able to meet its green energy goals without silver. Industrial demand will only continue to grow, and that creates a rising floor for silver prices,” he said. he declares. “Silver has become a critical and replaceable metal.”
As for what will bring investors back to the market, Krauth said bond yields and the U.S. dollar need to stop rising. The yield on 10-year bonds pushed above 4%, reaching its highest level since 2008; at the same time, the US dollar continues to trade near its highest level in more than 20 years. Krauth pointed out that these assets represent significant competition with silver.
However, he added that markets are starting to see the end of the Federal Reserve tightening cycle early next year and when that happens investors sitting on the sidelines will step in. Krauth said he sees silver prices returning to the low $20 range by mid-year and to the high $20 range by the end of next year.
“We’ll look back and see the current price as a bargain,” he said.
For investors looking to build a silver portfolio, Krauth said they should hold 10% in physical metal, 50% in large silver producers and royalty streamers, 20% in developing producers looking to build mines, and 20% in junior explorers.
“When you look at equities, you don’t have to take huge risks in your portfolio; there are a lot of senior producers out there who are having exceptional returns,” he said. “Like physical metal, mining stocks have been so battered that there is a lot of value in the market.”
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