Was Silver Under or Overvalued in 2023?

What we found interesting in preparation for this newsletter was during our research phase through the end of last week and early this week, we noticed several articles that highlighted that overall silver demand in 2023 was likely to have decreased by 10%. However, what they would then forget to include is why demand has fallen in the first place, where demand has actually increased, and finally, how 2023’s demand for silver compared to years past.

If we was opposed to silver and did not want anyone in the public to own this asset, we could very easily create an article and title it with the headline, “Silver Demand Drops 10% in 2023” – this would create an immediate feeling in someone that the investing public and/or industrial companies have far less use for silver this past year, signaling a future decline. Without reading into silver’s 2023, these headlines are incredibly damaging to silver’s reputation within circles that do just simply absorb headlines, which sadly is many people in today’s society. Of course, we are not saying these are bad people, it is just in a world of information overload, you find people reading a catchy headline and assuming the article based off of it, rather than being pulled in by a headline and then proceeding to actually read the article itself. When you then see that silver was down by around 0.66% on the year, essentially having the price remain unchanged, and then headlines stating demand was down by 10% which is quite a large number, people begin to assume that silver’s time in the sun quickly came when it was the best performing commodity in 2020 at a again of 47.89%, and now has quickly left.

With all that said, are these headlines we had come across being genuine or is there a disingenuous nature to these articles that are unfairly looking to paint silver in a poor light? Well, let’s dive into the numbers, and then we can let you make your own decision on how silver performed in 2023.

In 2022, silver demand reached a record high of 1.242 BILLION ounces of silver being required that year, increasing by 18% over 2021. This created a massive deficit of 237.7 million ounces, meaning demand shot up so much in 2022, that the world had nearly 240 million ounces less than were required. However, due to paper contact manipulation where the same ounce of gold and silver is sold over and over again to different people, we did not see true price discovery take place due to such a massive physical silver deficit. When looking at 2023, you quickly can see that the 10% drop in demand headlines are full of hot air, and that demand for silver is still historically high. In 2023, with final numbers not quite being reported, it is projected that total silver demand will come in at 1.14 BILLION ounces. Of course, not quite the 1.242 billion ounce record set in 2022, but what gets left out is 1.14 billion ounces in 2023 is the second highest demand recorded for a year all-time. Imagine that is what headlines read rather than pointing out the 10% decrease, it truly is all perspective. From there, the Silver Institute is still projecting a deficit of 140 million ounces of silver for 2023, and it gets even better for silver regarding the supply/demand price squeeze as it was further reported that by 2027 solar panels will eat up a whopping 20% of total physical silver supply, and if the pace continues 85-98% OF ALL PHYSICAL SILVER by 2050. It is incredibly clear why governments and central banks DO NOT want the public using silver as a monetary asset, and the reason for that being, in a world moving toward green energy, there is no more important asset on the face of the earth than physical silver.

One more thing laid out by the Silver Institute report that we feel is worth mentioning is the gold-silver ratio. The reason for that is because historically, gold will make the first move to kick the door down to indicate a golden bull run, but it is then silver that sprints through the open door to lead the market. When looking at 2023, all commodities saw pullbacks in price due to central banks raising interest rates and those hikes finally being felt in the economy. Oh wait, all commodities but one; that commodity being gold, which as we previously covered rose over 13% in 2023. What this historically signals is that silver is about to wake up and go on a historic run of its own. Due to monetary policy signalling that gold should go lower, yet it decided to rise higher on the year is a major signal for what can be expected in 2024 if interest rates are actually cut and brought lower.

Looking at 2008, the silver-gold ratio absolutely plummeted after the Federal Reserve intervened with massive currency creation, due to silver rising in price much more quickly than gold. Currently, we sit around a 89-1 silver-gold ratio meaning it takes 89 ounces of silver to buy 1 ounce of gold. Historically, this ratio sat around 20-1 going back to the times of the Romans, however, in more modern times, that ratio sits between 40-1 and 50-1, and when the silver-gold ratio begins to signal that silver is undervalued like it currently is, it is common for silver to fight back between 40 and 50-1, and even more common to surpass it for a period. In 2011, following the 2008 Great Financial Crisis, the silver-gold ratio dropped to 30-1, and in 1979 after the gold standard was abolished, the ratio moved swiftly to 20-1. These were periods that signalled buying was over and it was time to sell, whereas a ratio near 90-1 is signalling that silver is highly undervalued and that it is likely a good time to buy.

If you are looking to protect your wealth before any craziness picks up again in 2024, due to it being an election year for the United States it is hard to see this year going smoothly. Also, with an over 380 million ounce deficit in silver the last two years, and with that number continuing to grow, with the same thing happening with gold, it is clear why central banks and countries alike are stockpiling both of these metals at a record pace BEFORE any true calamity happens to ensure they are prepared. Again, countries reportedly added 44 tonnes of gold again in November – as the public accumulate debt; central banks accumulate silver and gold.

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