Here’s Why Silver Prices Could Soar in 2016
Precious metals have been amongst the worst performing investments this year. Both gold and silver prices seem to have landed in a downward spiral. The question: will silver prices rebound as we step into the New Year or just continue hitting new bottoms? In times like these, it’s always good to take advice from an expert.
For investment advice, I look no further than the respected investment maven and self-made billionaire Warren Buffett. Buffett’s investing principles are simple: invest in something that creates value. The thing about precious metals is that they are often considered only a store of value. Rightfully so, previous metals do serve as stores of value in times of economic uncertainty, but unlike gold, silver also has economic value.
This Could Cause Super Spike in Silver Prices
Unlike gold, whose use is pretty much restricted to jewelry and goldware, silver’s extensive industrial and medicinal use is of worthwhile nature. There’s one industry, in particular, that catches my eyes and I believe it’s where silver’s demand is going to spike in the coming years, lending a hand to the biggest boost in silver prices.
Silver is an excellent conductor of electricity and heat, which makes it an essential input in the solar industry. Photovoltaics (PVs) are what form the backbone of a solar panel and these PVs use a fair amount of silver as a semiconductor. According to a Reuters report, demand for silver in photovoltaic cells is expected to increase by 17% this year alone. (Source: “Thomson Reuters Releases Interim Silver Market Review,” Reuters, November 17, 2015.)
Now, the biggest demand for solar energy and, ultimately, silver is expected to come out of China. Currently the second-biggest country in the world in terms of solar capacity, China’s capacity stood at a little over 28 gigawatts (GW) up until last year. But hold your breath, as I reveal where this capacity is expected to stand in the next five years: the Chinese government has recently committed to grow the country’s capacity to over 200GW by 2020!
It is estimated that around 2.8 million ounces of silver are required to produce just one GW of solar energy. (Source: “How a global solar drive will boost silver prices,” CNBC, November 17, 2015.) I’m sure you can do the math yourself (or guess at the number) to see where the demand for the gray precious metal would stand for China alone.
Add to this the fact that Germany, the country with the biggest solar capacity, will also need silver to continue its business and other countries from the developed world, including Japan, the U.S., the U.K., and Italy, and emerging countries like India, Brazil, and Malaysia, are stepping up their solar capacity. Overall, you get the rough idea of how massive the demand for silver is expected to be in this industry alone.
The icing on the cake? At this time, there’s no viable silver substitute for this industry.
The Bottom Line on Silver Prices
The international community is on the same page when it comes to controlling our global carbon footprint and boosting renewable energy as a green alternative to conventional sources of energy. Solar energy is undoubtedly the most viable and fastest-growing renewable energy source.
Silver prices have historically remained cheaper than gold because of the grey metal’s abundance compared to the yellow metal. But the recent decline in silver’s supply and its expected robust demand in the fast-growing solar industry could eventually push its price to the north.
Silver prices are now hovering over $14.00, close to five-year lows, and appear to be a cheap entry point for prospective investors. Those betting against silver prices now could be kicking themselves later.