Silver Crash! But Check EVs, Solar and Debt

What the oil surge means for electrics and inflation...

BACK on February 27, the day before the Iran War began, we silver bugs were basking in the warm glow of a price bounce, writes Adam Sharp in Addison Wiggin's Daily Reckoning.

The metal was trading at around $93.50 per ounce. It had rebounded nicely from its low of around $70 back on February 6th.

Then the war hit. And silver has been on a downward trajectory since.

If you've been waiting to buy physical silver or ETFs like PSLV, now is a fine time to start. It's probably safest to spread out your buys, just in case we go lower.

But as we will explore today, the long-term bull case for silver is stronger than ever.

Iran's blockade of the Strait of Hormuz is set to brutally affect China and the broader Asian Pacific. About 80% of crude that flowed through the Strait went to Asia.

The region has little oil and gas of its own. So it relies heavily on fuel imports from the Middle East.

And right now, the normal flood of imports has slowed to a trickle. Gasoline and natural gas prices are soaring as a result.

Fortunately for China, at least, the country has become the world leader in electric vehicles (EVs) over recent years. Fully 60% of new car sales are either plug-in hybrids or fully electric today.

And despite recent advances in solar and wind, China still gets most of its electricity from coal power plants. It doesn't need imports from the Middle East for coal.

In the wake of this crisis, Asia is shifting even more heavily to electric vehicles. Bloomberg just ran an article titled, BYD Showrooms Are Bustling Across Asia After Iran Oil Shock. BYD is a Chinese company which has risen to become the world's largest electric vehicle maker.

At a BYD Co. car dealership in Manila's financial district, demand for the Chinese company's electric vehicles is so high that Matthew Dominique Poh said he's seen a month's worth of orders in just the past two weeks.

"Clients are replacing units in favor of EVs because of the oil price hikes," said Poh, who's been a salesman at the dealership for the past seven months.

EVs require more than 2x the silver a traditional ICE vehicle does. And going forward, every nation in Asia will be looking to build transportation independence. That means more EVs.

So while some are expecting industrial demand for silver to drop, I see it increasing significantly.

As we have covered extensively, solar energy is a key source of industrial silver demand. In the wake of this energy crisis, China and countries all over the world are rushing to install more solar panels.

With liquified natural gas (LNG) supplies drying up, solar will become even more important. And solar already accounts for a massive 24% of industrial silver demand.

While production may slow for a bit as the energy crisis is sorted out, in the medium and long term, it's going way higher. Because if this crisis continues, countries will do anything they can to reduce reliance on imported natural gas.

And that means more solar. And higher silver prices.

Now for the other side of silver. The monetary, inflation-hedge side.

For now, people are selling silver and rushing to cash as a safe haven. This is not a good long-term plan.

Sure, you can earn 3.5% on cash, for now, but inflation will likely outpace that soon. And before this debt bubble is resolved, inflation will get much worse.

Besides, this war alone is set to make the global debt crisis worse. Especially here in the US

President Trump just requested another $200 billion to support the war in Iran. And he's talked about raising the Department of War's budget to $1.5 trillion, even before the conflict began.

The wave of inflation we are about to experience will strain consumer spending. That means less tax money for the government. More borrowing, and more money printing.

In short, I'm not selling any of my silver.

Mining stocks are more complicated, because they require vast quantities of diesel and gasoline to operate. Higher costs are hitting them currently, but they will still make big profits even at these levels.

I'm still holding the vast majority of my silver (and gold) miners, despite the recent pain. Eventually this crisis will end, and oil will come down from wherever it peaks.

In the meantime, miners could see a bit more selling pressure. However, I think we're close to a bottom. And this is not the time to exit long-term positions. Many solid miners are trading like we're at $40 silver and $2500 gold.

Miners will shine again, too. It's just a matter of time.