#9. Silver: Oversold Secular Low

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#9. Silver: Oversold Secular Low

Silver closed 2022 higher by $0.65 (or 2.77%) to close at $23.95. Like gold, silver began the year on a firm footing before it was overwhelmed by CTA-type and retail selling (Figure 6a). From the March 2022 peak, over 818 million ounces of silver (or 52%) of combined CFTC14 and ETF silver were liquidated over six months. This selling wave was the most seen from retail-dominated ETF selling ever, indicating capitulation activity. By the September 2022 lows, CFTC silver positioning had reached a 3%-tile reading over the past 10 years, and silver in ETFs saw a -25% drawdown15 versus prior maximum drawdown levels of ~-10%. Considering the strong silver supply-demand fundamentals, silver liquidations were likely forced selling.

Silver and gold, as precious metals (similar macro variables), unsurprisingly have a very high correlation of 0.84 from 1981 (post the Hunt Brothers craziness) to 2022. In Figure 6b, we highlight the silver-to-gold ratio, a less common expression of the relative relationship. At the September lows, this ratio reached the 1%-tile reading and the primary support level. This 1%-tile level is an extreme undervaluation of silver relative to gold. As the 40-year chart demonstrates, the silver-gold ratio is mean-reverting. Silver fundamentals remain excellent, with virtually all its future demand growth tied to solar panel growth (silver is also an energy transition metal with monetary qualities). Similar to lithium, China accounts for 84% of global solar panel manufacturing, which must be reshored.

Figure 6a. Silver Bullion, Held Support in 2022 Despite Massive Forced Selling (2016-2022)

Figure 6a. Silver Bullion, Held Support in 2022 Despite Massive Forced Selling (2016-2022)

Source: Bloomberg. Data as of 12/31/2022. Included for illustrative purposes only. Past performance is no guarantee of future results.

Figure 6b. Silver-to-Gold Ratio and 40-Year-Range Lows (1980-2022)

Figure 6b. Silver-to-Gold Ratio and 40-Year Range Lows (1980-2022)

Source: Bloomberg. Data as of 12/31/2022. Included for illustrative purposes only. Past performance is no guarantee of future results.


Silver is going to be used in tonnes for solar panels, electric contacts and an inflation hedge.

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