Where Might Silver Be Heading in 2021?

The ramifications of the 2020 pandemic will be felt for years to come. This is especially true on the economic side of things. In 2021, people are investing in a range of assets to help safeguard their portfolios from this pandemic-induced economic uncertainty. This includes metals like silver and gold. The advantages of silver include the fact that it is more affordable than gold and it is both a monetary and industrial metal. This year, monetary and industrial factors will come into play and have a big effect on where silver might be heading in 2021.

The Monetary Situation 

Silver is a hedge against inflation, so as inflation rises, the price of silver will too. In 2021, the U.S. Federal Reserve is implementing policy with an eye on “controllable” inflation. The Fed wants to achieve an average of 2% inflation. This would be a positive but not very exciting development for silver in 2021.

What is interesting though is that the Fed, along with several economists, is more worried about deflation. This is when the velocity of money being spent in the economy slows to a crawl and the value of goods and services go down. While this might sound positive, it is actually bad for the economy and in 2021, the possibility is on the Fed’s radar.

When you combine these two factors, the Fed’s desire for an average of 2% inflation and the possibility of deflation in 2021, this is where the outlook for silver starts to get much more positive. In order to fight deflation and get to that 2% mark, the Fed plans on overshooting the 2% target to achieve an “average” of 2% inflation. These inflation-friendly policies could be a boon for silver in 2021.

Silver Futures – Daily – January 2020 to February 8,, 2021 (Tradingview)

Annotation: Note that silver has pulled back from its August 2020 highs of 30.00 per ounce. Silver is currently in a wide holding pattern, as investors digest the monetary and industrial implications of the metal. As fiscal and monetary policy serve as headwinds for the broader stock market, the specter of inflation can easily tip the scales in favor of the metal as soon as the effects of dollar debasement on purchasing power becomes more evident.

The arrow points to the surge in the last week of January 2021 as the Reddit-driven short-squeeze raid on hedge funds took place. Note that this created a surge that had quickly corrected; however, silver demand recovered and is once again on the rise.

An Industrial Boom 

Silver also has industrial applications and the incoming Biden administration may serve as a tailwind for the metal, spiking demand and raising the price considerably. One of Biden’s and the Democrat-controlled Congress’ biggest goals in 2021 and beyond is for the U.S. to become a much greener, more environmentally-friendly country. This goal will be backed by aggressive legislation starting in Biden’s first 100 days.

This agenda will include legislation that will incentivize both businesses and people to adopt green technologies. Electric cars and solar panels are two of these green technologies that will get a boost from the Biden administration and that means that the demand for silver will get a boost as well.

Electric car producers currently use more than 36 million ounces of silver annually to produce these green vehicles. Experts believe that under the Biden administration, this amount may go as much as 50-times higher, bringing the annual usage to 1.8 billion tons. Solar panels also use silver (around 20g or 0.643 troy ounces per panel) and the demand for solar energy in the coming year will also help increase demand.

A Silver Lining to Dark Clouds

Silver had a banner year in 2020, becoming the best performing asset class of the year. In 2021, when you look at the monetary policy factors that will combat deflation and increase inflation and the increased demand for silver expected to come from President Biden’s environmental agenda, signs point to another good or even great year for silver.




Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations.  There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.