2 years 4 months ago
Will First Majestic Silver CEO’s silver price prediction of more than US$100 per ounce come true?The silver price made waves in 2020 when it rose above US$20 per ounce for the first time in four years, and the precious metal has repeatedly tested US$30 per ounce since. Most recently, the silver price broke through the US$30 mark on May 17 and went on reach a nearly 12-year high of US$31.80 in the next trading session. On May 19, the silver price hit US$32.33 per ounce, which remains its highest point as of May 21.Well-known figure Keith Neumeyer, CEO of First Majestic Silver (TSX:FR,NYSE:AG), has frequently said he believes the white metal could climb even further, to hit the US$100 mark or even reach as high as US$130 per ounce.Neumeyer has voiced this opinion often in recent years. He put up a US$130 price target in a November 2017 interview with Palisade Radio, and he also discussed it in an August 2022 interview with Wall Street Silver. He has reiterated his triple-digit silver price forecast in multiple interviews with Kitco over the years, as recently as March 2023. Neumeyer made his most recent US$100 call in a conversation with ITM Trading’s Daniela Cambone at this year’s 2024 Prospectors & Developers Association of Canada (PDAC) convention.At times he’s been even bolder, suggesting in 2016 that the white metal could reach US$1,000 if gold were to hit US$10,000. More recently, his expected timeline for US$100 silver has been pushed back, but he remains very bullish on the metal in the long term.In order to better understand where Neumeyer’s opinion comes from and whether a triple-digit silver price is really in the cards, it’s important to take a look at the factors that affect the metal’s movements, as well as where prices have been in the past and where other industry insiders think silver could be headed. First, let’s dive a little deeper into Neumeyer’s US$100 prediction.
Why is Neumeyer calling for a US$100 silver price?
There’s a significant distance for silver to go before it reaches the success Neumeyer has boldly predicted. In fact, in order for the precious metal to jump to the US$100 mark, its price would have to increase from its current value by around 350 percent.Neumeyer has previously stated that he expects a triple-digit silver price in part because he believed the market cycle could be compared to the year 2000, when investors were sailing high on the dot-com bubble and the mining sector was down. He thinks it’s only a matter of time before the market corrects, like it did in 2001 and 2002, and commodities see a big rebound in pricing. It was during 2000 that Neumeyer himself invested heavily in mining stocks and came out on top.“I’ve been calling for triple-digit silver for a few years now, and I’m more enthused now,” Neumeyer said at an event in January 2020, noting that there are multiple factors behind his reasoning. “But I’m cautiously enthused because, you know, I thought it would have happened sooner than it currently is happening.”In his August 2022 with Wall Street Silver, he reiterated his support for triple-digit silver and said he's fortunately not alone in this optimistic view — in fact, he's been surpassed in that optimism. "I actually saw someone the other day call for US$500 silver," he said. "I'm not quite sure I'm at the level. Give me US$50 first and we'll see what happens after that."Another factor driving Neumeyer's position is his belief that the silver market is in a deficit. In a May 2021 interview, when presented with supply-side data from the Silver Institute indicating the biggest surplus in silver market history, Neumeyer was blunt in his skepticism. “I think these numbers are made up,” he said. “I wouldn’t trust them at all.” He pointed out that subtracting net investments in silver exchange-traded products leaves the market in a deficit, and also questioned the methodology behind the institute’s recycling data given that most recycled silver metal comes from privately owned smelters and refineries that typically don’t make those figures public."I'm guessing the mining sector produced something in the order of 800, maybe 825 million ounces in 2022," Neumeyer said when giving a Q4 2022 overview for his company. "Consumption numbers look like they're somewhere between 1.2 and 1.4 billion ounces. That's due to all the great technologies, all the newfangled gadgets that we're consuming. Electric vehicles, solar panels, windmills, you name it. All these technologies require silver … that's a pretty big (supply) deficit."In his 2024 PDAC interview, Neumeyer once again highlighted this sizable imbalance in the silver’s supply-demand picture. “We’re six years into this deficit. The deficit in 2024 looks like it’s gonna be bigger than 2023, and why is that? Because miners aren’t producing enough silver for the needs of the human race,” he said.More controversially, Neumeyer is of the opinion that the white metal will eventually become uncoupled from its sister metal gold, and should be seen as a strategic metal due to its necessity in many everyday appliances, from computers to electronics, as well as the technologies mentioned above. He has also stated that silver production has gone down in recent years, meaning that contrary to popular belief, he believes the metal is actually a rare commodity.Neumeyer's March 2023 triple-digit silver call is a long-term call, and he explained that while he believes gold will break US$3,000 this year, he thinks silver will only reach US$30 in 2023. However, once the gold/silver ratio is that unbalanced, he believes that silver will begin to take off, and it will just need a catalyst."It could be Elon Musk taking a position in the silver space," Neumeyer said. "There's going to be a catalyst at some time, and headlines in the Wall Street Journal might talk about the silver supply deficit … I don't know what the catalyst will be, but investors and institutions will wake up to the fundamentals of the metal, and that's when it will start to move."In an August 2023 interview with SilverNews, Neumeyer discussed his belief that banks are holding the silver market down. He pointed to the paper market for the metal, which he said the banks have capped at US$30 even in times of high buying. "If you want to go and buy 100 billion ounces of silver (in the paper market), you might not even move the price because some bank just writes you a contract that says (you own that)," he explained, saying banks are willing to get short, because once the buying stops, they push the price down to get the investors out of the market and buy the silver back. "... If the miners started pulling their metal out of the current system, then all of a sudden the banks wouldn't know if they're going to get the metal or not, so they wouldn't be taking the same risks they're taking today in the paper markets."The month after the interview, his company First Majestic launched its own 100 percent owned and operated minting facility, named First Mint. So far into 2024, gold has seen a resurgence in investor attention as the potential for Fed rate cuts nears closer. In his interview with Cambone at PDAC 2024, Neumeyer countered that perception, stating, “There’s a rush into gold because of the de-dollarization of the world. It has nothing to do with the interest rates.”
What factors affect the silver price?
In order to glean a better understanding of the precious metal’s chances of trading around the US$100 range, it’s important to examine the elements that could push it to that level or pull it further away.The strength of the US dollar and US Federal Reserve interest rate changes are factors that will continue to affect the precious metal, as are geopolitical issues and supply and demand dynamics. Although Neumeyer believes that the ties that bind silver to gold need to be broken, the reality is that most of the same factors that shape the price of gold also move silver.For that reason, it’s helpful to look at gold price drivers when trying to understand silver’s price action. Silver is, of course, the more volatile of the two precious metals, but nevertheless it often trades in relative tandem with gold.Looking first at the Fed and interest rates, it's useful to understand that higher rates are generally negative for gold and silver, while lower rates tend to be positive. That's because when rates are higher interest shifts to products that can accrue interest.When the COVID-19 pandemic hit, the Fed cut rates down to zero from 1 to 1.25 percent. However, rising inflation has led the Fed and other central banks to hike rates, which has negatively impacted gold and silver. In February 2023, the Fed raised rates by just 25 basis points, the smallest hike since March 2022, as Chair Jerome Powell said the process of disinflation has begun. The Fed continued these small rate hikes over the next year with the last in July 2023.While central bank actions are important for gold, and by extension silver, a key price driver lately has been geopolitical uncertainty. The past few years have been filled with major geopolitical events such as tensions between the US and other countries such as North Korea, China and Iran. More recently, the huge economic impact of the COVID-19 pandemic, Russia's war with Ukraine, the banking crisis in early 2023 and rising tensions in the Middle East brought about by the Israel-Hamas war have been sources of concern for investors.On a separate note, silver’s close ties to gold’s safe-haven status should be beneficial in the long term, and there is also a strong case to made for the metal's industrial potential. Higher industrial demand from emerging sectors due to factors like the transition to renewable energy will be highly supportive for the metal over the next few years.In a December 2023 interview with Kitco, Neumeyer stressed that silver is more than just a poor man's gold and he spoke to silver's important role in electric vehicles and solar cells.In line with its view on silver, First Majestic is a member of a consortium of silver producers that in January 2024 sent a letter to the Canadian government urging that silver be recognized as a critical mineral. Silver's inclusion on the list would allow silver producers to accelerate the development of strategic projects with financial and administrative assistance from the Canadian government. Canada's critical minerals list is expected to get an update in the summer of 2024.
Could silver hit $100 per ounce?
While we can't know if we'll reach a $100 per ounce silver price in the near future, there is support for Neumeyer’s belief that the metal is undervalued and that “ideal conditions are present for silver prices to rise.”Many are on board with Neumeyer in the idea that silver's prospects are bright, including Peter Krauth of Silver Stock Investor, who believes that "we are very likely going to experience the greatest silver bull market of our generation."So, if the silver price does rise further, how high will it go? Let’s look at silver’s recent history. The highest price for silver was just under US$50 in the 1970s, and it came close to that level again in 2011. The commodity’s price uptick came on the back of very strong silver investment demand.After spending the latter half of the 2010s in the teens, the 2020s have seen silver largely hold above US$20. In August 2020, the price of silver reached nearly US$28.50 before pulling back again, and moved back up near those heights in February 2021. The price of silver saw a 2022 high point of US$26.46 in February, and passed US$26 again in both May and November 2023. In the first quarter of 2024, silver once again flirted with the US$30 mark to reach an 11 year high of US$29.26 on April 12. Despite a brief pull back to the US$26 level, the month of May saw the silver price take another run at US$30, this time successfully pushing into US$32 territory as of May 19. Why is silver going up? Despite the Fed's seeming reluctance to reverse course on interest rates, "the white metal remains buoyed by its industrial applications," stated Trading Economics. The firm notes that silver is on track for a "fourth consecutive year of deficit amid tightening supplies".Strong demand from India's solar panel sector is another factor, according to precious metals analysts at Heraeus. "(T)he analysts noted that India imported more of the gray metal in Q1 2024 than in all of 2023, and they see Indian demand as a major contributor to price appreciation for the rest of the year," reported Kitco's Ernest Hoffman.Analyst firm Metals Focus has pointed out that the silver market is expected to post a substantial deficit in 2024 of 215.3 million ounces, the second highest in over 20 years.
What do other experts think about US$100 silver?
Many experts in the space expect silver to perform strongly in the years to come, but don't necessarily see it reaching US$100 or more, especially given the current macroeconomic conditions.As mentioned, some experts, including Krauth, agree with the triple digit silver hypothesis. In a May 2022 interview with INN, he explained that there are multiple paths silver could take to get to the triple digits."As I was doing my research, and this goes back over several years already, I would get to that US$300 forecast for an ultimate high in the silver price in different ways," he said, and broke down what a low gold/silver ratio — like we've seen the previous times that silver has peaked — could mean for the metal's price in the future.Speaking to INN in late December 2023, Krauth was looking forward to a rally in silver for 2024. “One of the most significant (events) for me was when we saw almost the entire US Treasury yield curve peak above 5 percent in mid-October," he said. "Since then, we've had the US Dollar Index peak at 107. Both of these have fallen considerably since, I believe in the market’s view that the Fed has stopped hiking rates, with the expectation that rate cuts will come sometime in 2024."In his December interview with INN, Krauth predicted silver could move close to the US$30 mark in the second half of 2024, and it has now surpassed that. The following month, at the Vancouver Resource Investment Conference (VRIC), he suggested silver could climb to over US$300 by 2030.Speaking at PDAC in March, Krauth said he sees a serious secondary silver supply shortfall emerging over the next 18 months to two years, which will cause the sector to "wake up in a big way."
What is the silver price outlook after $30?
The silver price has finally broken through the long anticipated US$30 mark, a catalyst experts have discussed heavily in recent years.Back in February 2022, David Morgan of the Morgan Report told INN he thought there was potential for silver to hit US$50 in the short term, as high levels of stock market volatility could make the white metal more attractive to investors and might drive it up over the US$30 mark."Once silver gets above US$33 and it stays there for three or four days — or better yet, even two or three weeks — there's not much holding it back to hit US$50 again," he said at the time.However, 2022 didn't shake out as many expected, and Morgan's expectations were more by the end of the year. "We'll have to see what happens," he said in his forecast for 2023. "Last time we got near US$30, very close to it, Rostin Behnam of the (Commodity Futures Trading Commission) came out and said they had to tamp down the silver market. What kind of a free market is that?"More recently, speaking to INN about his outlook for 2024, Morgan warned of the very real possibility of a US recession on the horizon, which could prompt a rally in precious metals and boost silver to above US$30 per ounce or higher.Gareth Soloway, chief market strategist at VerifiedInvesting.com, is another analyst who was confident silver had the potential to break the US$30 per ounce level and move higher in 2024."I continue to think that we're going to go up here and test US$30, which is that key resistance from 2020," he told INN in an April 2024 interview. "Once we get to US$30 we have to reevaluate. But I do think again, whether we get a small pullback or not, we're destined to go to US$30. And down the line if gold goes to US$3,000 you're going to see silver go higher than US$30 as well."
FAQs for silver
Why is silver so cheap?
The primary reason that silver is sold at a significant discount to gold is supply and demand, with more silver being mined annually. There is an abundance of silver — according to the US Geological Survey, to date 1,740,000 metric tons (MT) of silver have been discovered, while only 244,000 MT of gold have been found, a ratio of about 1 ounce of gold to 7.1 ounces of silver. In terms of output, 26,000 MT of silver were mined in 2023 compared to 3,000 MT for gold. Looking at these numbers, that puts gold and silver production at about a 1:8.7 ratio last year, while the price ratio at the end of February 2024 was around 1:90 — a huge disparity. While silver does have both investment and industrial demand, the global focus on gold as an investment vehicle, including countries stockpiling gold, can overshadow silver. Additionally, jewelry alone is a massive force for gold demand.
Is silver really undervalued?
Many experts believe that silver is undervalued at under US$30 compared to fellow currency metal gold. As discussed, their production and price ratios are currently incredibly disparate. While investment demand is higher for gold, silver has seen increasing time in the limelight in recent years, including a 2021 silver squeeze that saw new entrants to the market join in. Another factor that lends more intrinsic value to silver is that it's an industrial metal as well as a precious metal. It has applications in technology and batteries — both growing sectors that will drive demand higher. Silver's two sides has been on display in recent years: Silver demand hit record highs in 2022, according to the Silver Institute, with physical silver investment rising by 22 percent and industrial by 5 percent over 2021. For 2023, industrial demand was up 11 percent over the previous year, compared to 28 percent decline in physical silver investment.
How to invest in silver?
There are a variety of ways to get into the silver market. For example, investors may choose to put their money into silver-focused stocks by buying shares of companies focused on silver mining and exploration. As a by-product metal, investors can also gain exposure to silver through some gold companies. There are also silver exchange-traded funds that give broad exposure to silver companies and the metal itself, while more experienced traders may be interested in silver futures. And of course, for those who prefer a more tangible investment, purchasing physical silver bullion in bar and coin form is also an option.Private investor Don Hansen shared his strategies with INN for investing in precious metals, as well as a guide for building a low-risk gold and silver portfolio.
Can silver hit $1,000 per ounce?
In 2016, Neumeyer predicted that silver could hit $1,000 per ounce if gold ever climbed to US$10,000 per ounce. This is related to the gold to silver production ratio discussed above, which at the time of the prediction was around 1 ounce of gold to 9 ounces of silver and last year was about 1:8.3. If silver was priced according to production ratio today, when gold is at US$2,000 silver would be around US$240, or US$222 at 1:9. However, the gold to silver pricing ratio has actually sat around 1:80 to 1:90 recently, and when gold moved above US$2,000 in May 2023, silver was around US$25. Additionally, even if pricing did change drastically to reflect production rates, gold would need to climb around 500 percent from its current price to hit the US$10,000 Neumeyer mentioned back in 2016. As things are now, it seems unlikely silver will reach those highs.
Is silver better than gold?
There are merits for both metals, especially as part of a well-balanced portfolio. As many analysts point out, silver has been known to outperform its sister metal gold during times of economic prosperity and expansion.On the other hand, during economic uncertainty silver values are impacted by declines in fabrication demand.Silver’s duality as a precious and industrial metal also provides price support. As a report from the CPM Group notes, “it can be seen that silver in fact almost always (but not always) out-performs gold during a gold bull market.”
At what price did Warren Buffet buy silver?
Warren Buffett's Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) bought up 37 percent of global silver supply between 1997 and 2006. Silver ranged from US$4 to US$10 during that period.In fact, between July 1997 and January 1998 alone, the company bought about 129 million ounces of the metal, much of which was for under US$5. Adjusted for inflation, the company's purchases in that window cost about US$8.50 to US$11.50.
This is an updated version of an article originally published by the Investing News Network in 2016.Don’t forget to follow us @INN_Resource for real-time news updates!Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Investing News Network
2 years 4 months ago
Australia’s economy is largely based on its natural resources, with the minerals sector making the greatest contribution to the nation’s exports at 62.5 percent. What are the top 5 natural resources in Australia in terms of export value?Five of Australia’s states and territories rank in the top 20 mining jurisdictions in the world for investment attractiveness, according to the Fraser Institute’s latest annual survey of mining companies: Western Australia (fourth), Northern Territory (8th), Queensland (13th) and Southern Australia (19th).These mining jurisdictions demonstrate a high level of investment attractiveness mainly due to their mineral-rich geology, solid infrastructure, stellar economic environment and government support for the resources industry at both the federal and state level.Australia exports a wide range of important mineral resources, including precious metal gold, base metals such as copper, iron ore, aluminum and nickel, and energy resources oil, natural gas and coal. In recent years, lithium has also become a major mineral export for Australia.Despite widespread wildfires and COVID-19 causing business disruptions across the country, during the 2022 to 2023 period, Australia mineral exports reached a record high of AU$466 billion worth of resources and energy fuels. For the 2023/2024 period, that figure fell to AU$417 billion, according to the Department of Industry, Science and Resources, which is forecasting a further decline to AU$366 billion for 2024-2025. "This outlook reflects weaker world demand growth and rising commodity supply — that lowers global prices — and a predicted rise in the Australian dollar against the US dollar," notes Export Finance.Read on for a breakdown of Australia's five most valuable natural mineral resource exports, iron ore, coal, liquified natural gas, gold and lithium. Combined, they brought in the vast majority of Australia’s export earnings in the 2022/2023 financial year, as per the data from the Department of Industry, Science and Resources.
1. Iron ore
Australia is the king of the iron game. US Geological Survey (USGS) information shows it accounted for 38.4 percent of global iron ore production in 2023, well ahead of Brazil, which came in second place. The nation also ranks as the world’s largest exporter of iron ore.Iron is the definitive base metal, and is used in everything from infrastructure to transportation to advanced technology — meaning Australia and its many iron ore mines in Western Australia have enjoyed a mighty run of economic prosperity as China has leaned into its push for industrialization.The Department of Industry, Science and Resources’ data from 2022/2023 shows that iron ore accounted for AU$129.1 billion of export value in that period, and is forecasted to bring in AU$136.7 billion for 2023/2024. Weaker demand out of China, and globally, is likely to dampen demand for iron ore going forward, which led the department to project iron ore export value of AU$82.8 billion for the 2028/2029 financial period.
2. Coal
While more western nations around the world are turning away from coal, in Australia, the sooty black rock is a source of incredible wealth. In terms of Australia’s resource and energy exports, during the 2022/2023 financial period metallurgical coal and thermal coal accounted for an export value of AU$64.4 billion and AU$68.1 billion, respectively. Australia hosts coal deposits across the country, with a number of new mines under construction and expansion projects underway. However, softer demand for coal going forward is likely to result in a significant decrease in Australia's coal exports over the coming years as the transition to renewable energy continues and financing for new coal projects dries up. During the 2023/2024 period, export values for both metallurgical and thermal coal are expected to drop to AU$55.7 billion and AU$36.3 billion, respectively, and fall even more sharply by 2028/2029 to AU$35.2 billion and AU$21.2 billion.
3. Liquified natural gas
Liquified natural gas (LNG) is Australia’s third most valuable resource export, earning more than AU$95.9 billion for the economy in the 2022/2023 financial period. The Department of Industry, Science and Resources expects this figure to decline to AU$71.5 billion for 2023/2024.The island continent is home to 14 different basins that yield natural gas. The country has significant natural gas reserves, with much of it locked up in coal seams that require unconventional drilling. Most of Australia’s natural gas production occurs offshore in the northwest, which has seen an increase in large development projects over the past few years.Moving forward, several factors are expected to place downward pressure on Australia's LNG export values, including less production from maturing wells alongside a drop in investment; declining use of natural gas as an energy source in favour of renewables; lower natural gas prices; and the rising prominence of US LNG in the global export market. All in, the department projects the value of Australia's LNG exports will fall to AU$44.8 billion in the 2028/2029 financial period.
4. Gold
Gold accounted for AU$25.4 billion in export value in the 2022/2023 financial year in Australia, earning its place as the fourth most valuable mineral export. The Department of Industry, Science and Resources expects this figure to rise to AU$27.9 billion for 2023/2024, before falling to a projected AU$19.7 billion by 2028/2029. According to the USGS, Australia produced 310 tonnes of the yellow metal in 2023, tying it with Russia as the second largest gold-producing nations, behind China.Much of Australia’s wealth is founded on gold, with a number of gold rushes triggered in the mid-1800s that supercharged the nation’s development and set it down its path of prosperity through mining. Today, most of the top-producing gold mines in the country are located in Western Australia.
5. Lithium
Lithium comes in as the fifth most valuable mineral export from Australia, earning AU$20.1 billion in 2022/2023. The country is the world's largest producer of the energy metal, putting out 86,000 MT of lithium in 2023, and hosts the second largest lithium reserves at a JORC-compliant 4.8 million MT.Most of Australia's lithium resources are located in Western Australia, where there are several hard-rock deposits. Lithium mined in the country mainly originates from spodumene, though it can be found in lepidolite as well. Global economic pressures on consumers have led to shrinking demand for electric vehicles, and in turn, lithium demand and prices are on the decline. The resulting overhang in supply has led to the curtailment of lithium production from Australia's major lithium operations, including Greenbushes, owned by joint venture partners Tianqi Lithium (SZSE:002466), IGO (ASX:IGO,OTC Pink:IPGDF) and Albemarle (NYSE:ALB).Looking forward, for the 2023/2024 period, the Department of Industry, Science and Resources is forecasting AU$11.3 billion in export value for lithium, and projecting that figure to come in at AU$9.1 billion in 2028/2029.
Other mineral resources
While the five resources above represent the most valuable mineral exports to the Australian economy, the country sits on significant reserves of almost every mineral you can find on the planet. Other major commodities of significant value to the Australian economy are copper, aluminum, oil, nickel and zinc. Wondering where uranium and rare earths are on this list? Despite having 28 percent of the world’s reserves, uranium export value came in at only AU$844 million for the 2022/2023 period as the country only has two producing uranium mines for the period, Four Mile and Olympic Dam. As uranium demand increases and a new mine supply comes online, that figure is projected to jump to AU$1.2 billion in 2023/2024 and AU$2 billion by 2028/2029. While Australia also ranks as the fourth largest producer of rare earths globally, rare earths production did not rate as a major contributor to the Australian economy.
This is an updated version of an article first published by the Investing News Network in 2019.Don’t forget to follow us @INN_Resource for real-time updates!Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.
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