The price of silver has more than doubled in the last 12 months rising four times faster than Gold which climbing to its most expensive level versus gold since 1983.
Like gold, silver is used as a hedge against the weakness of the dollar. Silver is the most widely used precious metal in industry from semi-conductors to solar panels, and political uncertainty in exporting countries like Peru also create further buying interest.
Silver as a Hedge Metal?
In 2008, the price of silver fell to below 10 dollars as it was considered simply an “industrial metal” with much in reserve. As the recession seemed to herald an imminent depression, investors began buying Gold and Treasuries reminiscent of reactions during the 1929-1932 depression, leaving silver out of the loop.
Back in the 30's, silver was considered a base metal, with abundant supply somewhere short of 5 times the actually domestic demand for industry and coins in North America and there was little interest in it as "precious".
Silver made a slow comeback until the late 1970's and on Silver Thursday in 1980, the price of silver collapsed again in the face of government dishoarding and mine supply increases. There was no sign of silver shortage and gold continued to lead the world as the base monetary metal of exchange.
These days, the mindset that gold remains the only hedge against market collapse and inflation is wavering. Although most gold investors would consider silver as ever-abundant and of little interest, recent history would suggest otherwise.
COMEX, an exchange warehouse stock pile of silver has less than 50 million ounces for sale as of a year ago, significantly less than the hundreds of millions of ounces accessible in previous decades. COMEX trades millions of paper ounces of silver per day, the majority never settled in actual physical silver bars, creating a liquidity based on leverage that sets the world price for the white metal.
Supply and demand seem to be mismatched. Is there truly enough physical silver to fill the volume of COMEX business or is this simply a paper play of in-out IOU's of an irreplaceable stockpile? Would the banks be able to deliver on short sales? Are we simply buying and selling monopoly money masquerading as a silver bar? And what happens if buyers call in their purchases in actual physical silver all at once? Is there enough of the stuff to translate paper into metal?
It would seem that the silver market does not truly require new investments for prices to be forced higher--current paper holders simply have to demand conversion to physical silver.
Why the demand for silver?
As with other precious metals, silver is not in abundance, has been historical used as direct currency, and is pretty. Bottom line. We wear it as jewellery and we print coins from it. But there are other more important applications for silver that are growing in global industry. And annual production of the metal has been significantly less than annual consumption of late leading to growing declines in reserves.
Industrial applications of silver accounted for over 400 million ounces in 2005. Silver is used as a electrical conductor, heat conductor, a flexible metal to shape small wires, and as a catalyst in the plastics industry for manufacture of polyesters and solid plastics.
Billions of silver-zinc batteries are produced annually to power small electronic devices and silver is used in conductors, switches, fuses, vacuum cleaners, dryers, microwaves, dishwashers, computer keyboards and hundreds of other daily use appliances.
Automobiles contain silver tipped contacts and switches; marine motors, jet engines and tankers all rely on silver tipped electrical circuits.
Silver is used in medicine as an antimicrobial, in photographics, Xrays, and of course to adorn our bodies as jewellery. Silver is used in solar panel production, semiconductor manufacture, and as currency.
What Would Warren Buffet Say?
Well, as usual, I like to pass my thoughts through the buffetometer and this is what I learned: Warren Buffet reportedly purchased 130 million ounces of the white metal in 1997--the legal limit an individual could personally own.
Bottom line, silver is the new gold. Silver applications are increasing, silver stockpiles are diminishing, silver mining may not meet demand. So buy silver.
Disclosure. The authors own shares of the US ETF Global X Silver Miners (SIL).
Like gold, silver is used as a hedge against the weakness of the dollar. Silver is the most widely used precious metal in industry from semi-conductors to solar panels, and political uncertainty in exporting countries like Peru also create further buying interest.
Silver as a Hedge Metal?
In 2008, the price of silver fell to below 10 dollars as it was considered simply an “industrial metal” with much in reserve. As the recession seemed to herald an imminent depression, investors began buying Gold and Treasuries reminiscent of reactions during the 1929-1932 depression, leaving silver out of the loop.
Back in the 30's, silver was considered a base metal, with abundant supply somewhere short of 5 times the actually domestic demand for industry and coins in North America and there was little interest in it as "precious".
Silver made a slow comeback until the late 1970's and on Silver Thursday in 1980, the price of silver collapsed again in the face of government dishoarding and mine supply increases. There was no sign of silver shortage and gold continued to lead the world as the base monetary metal of exchange.
These days, the mindset that gold remains the only hedge against market collapse and inflation is wavering. Although most gold investors would consider silver as ever-abundant and of little interest, recent history would suggest otherwise.
COMEX, an exchange warehouse stock pile of silver has less than 50 million ounces for sale as of a year ago, significantly less than the hundreds of millions of ounces accessible in previous decades. COMEX trades millions of paper ounces of silver per day, the majority never settled in actual physical silver bars, creating a liquidity based on leverage that sets the world price for the white metal.
Supply and demand seem to be mismatched. Is there truly enough physical silver to fill the volume of COMEX business or is this simply a paper play of in-out IOU's of an irreplaceable stockpile? Would the banks be able to deliver on short sales? Are we simply buying and selling monopoly money masquerading as a silver bar? And what happens if buyers call in their purchases in actual physical silver all at once? Is there enough of the stuff to translate paper into metal?
It would seem that the silver market does not truly require new investments for prices to be forced higher--current paper holders simply have to demand conversion to physical silver.
Why the demand for silver?
As with other precious metals, silver is not in abundance, has been historical used as direct currency, and is pretty. Bottom line. We wear it as jewellery and we print coins from it. But there are other more important applications for silver that are growing in global industry. And annual production of the metal has been significantly less than annual consumption of late leading to growing declines in reserves.
Industrial applications of silver accounted for over 400 million ounces in 2005. Silver is used as a electrical conductor, heat conductor, a flexible metal to shape small wires, and as a catalyst in the plastics industry for manufacture of polyesters and solid plastics.
Billions of silver-zinc batteries are produced annually to power small electronic devices and silver is used in conductors, switches, fuses, vacuum cleaners, dryers, microwaves, dishwashers, computer keyboards and hundreds of other daily use appliances.
Automobiles contain silver tipped contacts and switches; marine motors, jet engines and tankers all rely on silver tipped electrical circuits.
Silver is used in medicine as an antimicrobial, in photographics, Xrays, and of course to adorn our bodies as jewellery. Silver is used in solar panel production, semiconductor manufacture, and as currency.
What Would Warren Buffet Say?
Well, as usual, I like to pass my thoughts through the buffetometer and this is what I learned: Warren Buffet reportedly purchased 130 million ounces of the white metal in 1997--the legal limit an individual could personally own.
Bottom line, silver is the new gold. Silver applications are increasing, silver stockpiles are diminishing, silver mining may not meet demand. So buy silver.
Disclosure. The authors own shares of the US ETF Global X Silver Miners (SIL).
Dear Investobot:
ReplyDeleteA testament to how volatile and unpredictable the stockmarket, and investing in general,can be: in the last 5 trading sessions of the TSX, silver has lost about 30% of its value.