Barron's: Squeeze Play Added Fuel to Rising Silver Prices. Here's Why the Metal Remains Undervalued

Article by Myra P. Saefong in Barron's

Frenzied trading in silver recently lifted prices to an eight-year high. But fundamentals already pointed to a break out in the metal before the latest rally, some analysts say, and prices remain undervalued.

“Reddit-triggered buying” was a significant event that “lit a fuse,” says Paul Mladjenovic, author of “Investing in Gold and Silver for Dummies.” The physical market is extremely tight and demand is stronger than usual, so there is power to the upside for silver prices.

On Feb. 1, futures prices settled at $29.418 an ounce, the highest finish since February 2013. It was really a combination of factors that led to silver’s rise, says Frank Holmes, chief executive officer of U.S. Global Investors. “Solar panels have been a massive industrial demand” source, and President Joe Biden’s climate change initiative are bullish for silver demand, he says.

In a late January blog post, Holmes wrote that silver would become a major beneficiary of emerging industrial applications, including an increase in solar power generation and the global rollout of 5G technology, which will boost the need for the metal.

Silver’s physical market was already stressed, with major world manufacturers and mines encountering more demand for certain fabricated bars and coins “than their ability to produce product since the Jan. 6 storming of the U.S. Congress.” That episode created a demand surge for gold and silver, says Dana Samuelson.

The Reddit-driven surge strained supplies even further, pushing premiums that dealers charge each other higher, Samuelson says, as “dealers across the country rushed to buy any immediately deliverable production.”

“Rising investment demand could absolutely increase silver prices over the long run,” says Ryan Giannotto, director of research at GraniteShares. 

With the “inflationary pressures of low rates, continued stimulus and a falling dollar, all precious metals are in an environment conducive for materially higher price potential,” Giannotto says.

Samuelson believes silver remains undervalued relative to gold by 10% to 30%. With gold in the $1,825 to $1,875 an ounce range, silver should be trading at $30 to $35, he says.

“The market is stronger now, especially with problems unfolding with inflation, debt, and spending.” Triple-digit silver—$100 or more—is a possibility in .....

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