Silver soared last summer on skyrocketing demand from stock traders
stampeding into silver-ETF shares. These huge positions that sure
looked speculative initially have largely stayed deployed since,
even riding out a silver correction. That implies these holdings
are now being viewed as long-term investments. The silver
investors’ resoluteness is very bullish for this metal, keeping
silver high which fuels growing interest.
Silver has certainly had a wild ride this year, more than living up
to its super-speculative reputation. It got sucked into the
overwhelming maelstrom of fear from mid-March’s stock panic on
governments’ COVID-19 lockdowns, plummeting 35.8% in under a month!
The resulting $11.96 nadir was brutal, well below the world’s silver
miners’ all-in sustaining costs of production. Silver had been left
for dead at that 10.9-year low.
But
like a phoenix rising from the ashes, silver’s rebound out of those
extreme lows was incredibly violent. Over the next 4.8 months into
early August, silver skyrocketed 142.8% higher to $29.04!
That proved its best level in 7.4 years. If such high silver prices
can be sustained, that would be a game changer for the
long-struggling
major silver miners. And so far these way-better silver prices
have largely held since.
In
the 4.4 months since its latest upleg peaked, silver has averaged an
impressive $25.00 on close. That is 54.5% higher than 2019’s
average price! These far-higher prevailing silver levels are
resulting from silver investors’ resolve. They haven’t unwound most
of their massive new positions added during this past summer. That
suggests they believe silver’s secular bull will keep powering
even higher on balance.
Unfortunately world silver supply-and-demand fundamentals are really
opaque. Despite its enthusiast following, silver is a tiny global
market with a dearth of reliable data. Silver’s definitive
fundamental read is only published once a year by the
venerable Silver Institute in its World Silver Survey. The last one
was released in late April, covering 2019. Thankfully silver
investment has a far-higher-resolution proxy.
That
is the physical-silver-bullion holdings of the leading and dominant
SLV iShares Silver Trust. They are published daily, vastly
superior to the annual peek provided by the WSS. Launched way back
in April 2006, SLV has grown into a silver juggernaut. Last year
SLV’s holdings grew 45.4m ounces to hit 362.6m. According to that
latest WSS, that growth represented 55.6% of the global
silver-ETF-demand total.
And
the 81.7m ounces of silver that exchange-traded funds bought in 2019
weighed in at nearly a third of overall investment demand. Last
spring when they were preparing their latest WSS, its analysts
forecast major growth in silver demand through ETFs this year. They
projected this silver demand soaring 46.9% YoY to 120.0m ounces in
2020. But even that optimistic view fell way short of what recently
transpired.
With
this crazy year winding to a close, SLV’s holdings alone have
skyrocketed 194.8m ounces year-to-date! Among all kinds of
excellent data in the WSS reports is the silver-bullion totals held
in physically-backed ETFs around the world. At the end of last
year, SLV’s holdings commanded 49.8% of the world total! So this
American silver ETF dominates its space, and silver ETFs are
increasingly silver’s main driver.
Silver ETFs’ mission is to track and mirror the underlying silver
price. But the supply and demand for silver-ETF shares is
independent from silver’s own. So the only way ETFs can maintain
price parity with silver is to shunt excess silver-ETF-share supply
and demand directly into silver itself. That requires making
these ETFs actual conduits for stock-market capital to flow into and
out of real physical silver bullion.
When
SLV-share demand exceeds silver’s, those share prices will decouple
from silver’s to the upside. SLV’s managers prevent this by issuing
enough new shares to offset this differential demand in real-time.
Then they immediately plow the proceeds from those new-share sales
into buying more physical silver bullion for their vaults. So when
SLV’s holdings are rising, stock-market capital is flowing into
silver.
And
when SLV-share supply runs higher than silver’s, those share prices
threaten to disconnect from silver’s to the downside. SLV’s
managers avert this by buying back enough shares to absorb the
differential supply in real-time. They raise the money to finance
those purchases by selling some of their silver-bullion hoards. So
when SLV’s holdings are falling, stock-market capital is shifting
back out of silver.
In a
year full of remarkable and unprecedented market action, what
happened in SLV’s holdings is near the top of the most-amazing
list. This silver-bull chart superimposes SLV’s
physical-silver-bullion holdings held in trust for its shareholders
over silver’s price and technicals. I marveled at this chart last
summer as silver soared, and marvel at the incredible resolve silver
investors have shown since. They are hanging tight!
 
Silver’s current secular bull was born in mid-December 2015 with
gold’s, and all its uplegs and corrections since are carved out on
this chart. Note that strategically silver price trends usually
follow those in SLV’s holdings. Silver uplegs mostly coincided with
SLV builds, while SLV draws helped drive silver corrections. Before
2020, this bull’s biggest SLV build fueling a silver upleg was 19.3%
or 62.7m ounces in mid-2019.
And
silver investment had generally been out of favor for a decade or
so, since silver shot parabolic and then collapsed back in early
2011. Near silver’s late-April peak of $48.43 after skyrocketing up
169.5% in just 8.3 months, SLV’s holdings hit an all-time-record
high of 366.2m ounces. Over the next 8.9 years into March 2020,
those holdings never went higher than 388.2m. Silver couldn’t win
significant popularity.
That
previous-record 388.2m peak came in August 2019, as silver’s upleg
that year crested surging to $19.59. Prior to that month the
highest SLV holdings ever reported was 366.4m ounces in October
2016, which was actually dead-flat over 5.5 years since April 2011.
So there was virtually no excitement in silver for many long
years, and investors generally wanted little to do with it. All
that suddenly changed in 2020.
For
the decades I’ve been studying silver and trading its miners’
stocks, gold has
been its primary driver. Silver generally mirrors and amplifies
gold’s trends, acting like a leveraged play on gold somewhat like a
mining stock. So after March 2020’s stock panic, some of the
earlier trades we added after those super-anomalous lows were
major silver stocks. These were recommended in our newsletters
in early April.
After writing about the epic opportunities in gold and gold stocks
in that panic’s immediate wake, I finally found time for silver in
mid-April. In my essay “Big
Silver Bull Running!” published when silver was still in the low
$15s, I concluded “Silver will almost certainly double or triple,
and potentially quadruple or quintuple again, from last month’s deep
10.9-year secular low!” Its “outperformance after stock panics is
legendary.”
I
discussed the incredible differential SLV-share demand following
that panic, with its holdings soaring 12.0% or 44.6m ounces higher
in less than a month! That was finally a major upside breakout
to new record SLV holdings after those long years of no meaningful
capital inflows. The reason silver’s price was able to blast 2.4x
higher by early August was astoundingly-strong SLV demand from
American stock traders.
It
was like these guys finally rediscovered silver after nearly
a decade of it flying way under their radars. The faster and higher
silver rallied, the more SLV shares they bought. The more of those
positions they amassed, the more physical silver bullion SLV’s
managers had to buy accelerating silver’s rally. It was a glorious
virtuous circle of buying, catapulting silver that enormous 142.8%
higher in that quick 4.8 months.
During that fast silver upleg’s exact span, SLV’s holdings
skyrocketed a phenomenal 53.6% or 198.7m ounces higher. They
literally exploded vertically as this chart reveals, which was
easily the biggest inflow of stock-market capital into silver ever
witnessed! Even back in late 2010 and early 2011 as silver blasted
parabolic generating vastly-greater excitement and greed, SLV’s
holdings only climbed 20.8% or 61.2m ounces.
It
was really fun riding that blistering post-panic silver upleg this
year, and some of our biggest realized gains came in silver-stock
trades running as high as +199.1%! But stock traders are notorious
for being momentum players. They love piling in when something is
soaring, but once it peaks and starts selling off they are quick to
exit and move on to the next exciting thing. So I feared heavy SLV
selling was looming.
All
bull-market uplegs are followed by healthy corrections to rebalance
sentiment and technicals. And the magnitude of those selloffs tends
to be similar to their preceding uplegs. The first three uplegs of
this silver bull were fairly modest, averaging just 35.9% gains.
Yet the subsequent corrections following them still averaged major
28.9% losses! Excluding that anomalous stock-panic one, the other
two averaged 23.9%.
If
silver’s corrections snowballed that big after smaller uplegs, what
was likely after it rocketed up 142.8% in its latest one? And if
silver plunged 25% to 30% in its inevitable correction, would the
legions of new silver investors via SLV shares aggressively flee as
their capital shrunk? Some fraction of these new SLV shareholders
were inexperienced millennials trading their stimulus money with
that free Robinhood app.
I
discussed these Robinhooders in more depth in a mid-July essay on
the exploding
silver demand. I sure thought once silver’s upleg exhausted
itself and rolled over into a correction, SLV shares would have to
suffer a serious mass exodus. That differential SLV-share
selling would exacerbate silver’s downside, fueling a vicious circle
of losses. And with SLV’s holdings just soaring, there was lots of
potential selling to do.
Silver did indeed soon start
correcting with
gold right on cue like usual. At worst so far, the white metal
has lost 22.2% over 3.7 months since its early-August peak. But
even though this latest correction was nearing this bull’s previous
average excluding March’s stock-panic anomaly, SLV’s holdings merely
shed 25.2m ounces or 4.4%! Such resilience was astonishing with so
much new capital stuffed into SLV shares.
The
highly-speculative momentum-chasing SLV positions that mushroomed
last summer have morphed into apparent long-term investments!
That doesn’t necessarily mean the same stock traders kept their
capital deployed in silver. The hot-money millennials could’ve
fled, while institutional investors started to amass silver
portfolio allocations after its huge upleg finally put silver back
on their radars for the first time in years.
It
doesn’t matter who owns SLV, its silver-bullion holdings have been
able to hold near highs after they rocketed parabolic last
summer! Vertical ascents plateauing instead of symmetrically
collapsing are very rare in the markets. After many years of
neglect, silver has won over a large contingent of new capital from
the stock markets. And these investors must believe silver’s bull
market still has lots of room to run higher.
They
only unwound about 1/8th of their massive capital inflows into SLV
during this latest upleg. Back in early August I would have bet on
at least a half one, a silver-correction draw on the order of 100m
ounces instead of just 25m. But these new silver investors via SLV
shares are certainly right that the outlook for silver remains very
bullish. Silver is a small speculative asset in a world awash in
new central-bank money.
Almost all financial assets have enjoyed soaring prices since the
stock panic as central banks spun up their printing presses to
radically-unprecedented speeds. Leading the way to monetize
everything was the Fed, which ballooned its balance sheet by an
absurd $2,857b or 66.3% in just the first 3.0 months after
mid-March’s panic! Other major central banks added the equivalent
of trillions of new dollars of their own.
If
even a tiny fraction of that liquidity deluge parks in silver, it is
in for a speculative mania exceeding what is going on in bitcoin
today. Compared to that leading cryptocurrency and gold, the silver
market is just vanishingly-small. So any given capital inflows move
silver higher faster. One way to visualize silver’s tiny market is
looking at its annual demand multiplied by average prices compared
to those seen in gold.
That
latest World Silver Survey covering 2019 pegged total global silver
demand at 991.8m ounces last year. That happened at $16.18 average
silver prices, implying the silver market was worth a trivial $16.0b
in 2019. Using this same metric for gold derived from the latest
fundamental data from the World Gold Council, its market was worth
$196.6b last year. Thus silver’s market is running about 1/12th
the size of gold’s!
So
any capital migrating into silver has about 12x the potential to
drive silver-price upside than the same amount flowing into gold.
And using SLV’s holdings as a proxy for overall silver investment,
silver has won massive capital inflows this year. At the end of
2019, SLV’s holdings were worth about $6.5b. This week with both
much-higher silver prices and SLV holdings, they are worth $14.0b
which has soared 116.9%!
As
long as gold’s own secular bull market continues powering higher on
balance, so will silver’s. Central banks’ vast flood of
quantitative-easing money printing certainly supports the precious
metals. Since their total aboveground supplies only grow slightly
each year on new mining, there is relatively far more money
available to compete for roughly the same amounts of gold and
silver. That should bid their prices way higher.
Silver prices rebounding after correcting parallel to gold’s own
rebalancing selloff, and the persistent high SLV holdings, argue
that a new silver upleg is likely getting underway. The same is
true for gold, which has led us to aggressively redeploy in
fundamentally-superior gold and silver stocks in our newsletters
since late November. So far we’ve added 10 and 4 new stock trades
in our weekly and monthly since then.
They
include one of the world’s purest major primary silver miners, and
the world’s newest primary silver producer just spinning up its
first mine. The fundamentally-superior silver stocks amplify
silver’s upside in bull-market uplegs. And with SLV’s
persistently-high holdings implying silver investors’ resolve to
stay deployed is strong, that ups the odds silver’s correction is
over. So its next upleg could already be marching.
At
Zeal we walk the contrarian walk, buying low when few others are
willing before later selling high when few others can. We overcome
popular greed and fear by diligently studying market cycles. We
trade on time-tested indicators derived from technical, sentimental,
and fundamental
research. That’s why all 1178 stock trades recommended in our
newsletters since 2001 averaged hefty +24.0% annualized realized
gains!
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The
bottom line is silver investors have proven remarkably resolute
since this metal’s parabolic peak in early August. The dominant SLV
silver ETF’s bullion holdings, which are the best daily proxy for
global silver investment demand, have held near highs in recent
months. That was despite a silver correction following an
unprecedented vertical soaring in SLV’s holdings, driven by record
capital inflows from stock traders.
The
fact silver investors haven’t unwound the great majority of their
huge summer buying implies they still expect this silver bull to
keep running higher. That makes sense with silver being a tiny
global market in a vast deluge of new central-bank liquidity. With
lots more capital competing for roughly the same amounts of
aboveground silver, great upside potential remains. The better
silver miners’ stocks will amplify silver’s gains. | 
