Today we consider
the investment case for silver and I give you five reasons to buy it and five not to.
One day it will go to the moon. It has close ties with that planet, after all.
The question is whether it is worth the wait. “One day”
and “within reasonable investment time horizons” are not the same thing.
A reasonable investment time horizon might be three years. Ideally less.
One day could be a lifetime away.
Or more...
This is something I have said many times: there is probably no investment with as much potential
as silver, except perhaps some little-known tech that neither you nor I can understand. Yet
there is no investment more frustrating.
With that in mind: today I offer you five reasons to buy silver. And five reasons not to.
Balance is everything after all.
Let’s start with why you should go all in and buy.
Silver is cheap. The all-time high for silver was $50/oz, a price set a long time ago in the mists
of time. Well, 1980. $50 was subsequently re-tested in 2011. The re-test failed.
Today silver sits at $22.60. That’s 55% lower. Is there any other asset, let alone a commodity,
that is trading at such a discount to its all-time
highs, especially with all the currency debasement that has gone on? It’s SO cheap.
Silver should be much more expensive. There is roughly 15 times as much silver in the earth’s
crust as there is gold. Thus the gold price should be 15 times the silver price. Indeed
that is the historical average. And by historical average I mean in Ancient Mesopotamia, in Ancient
Greece, in the Dark and Middle Ages, in the Early Modern Era, right up to the Twentieth Century.
Today the gold price is 79 times the silver price. A return to the
historical average would mean silver five times higher, north of $100/oz.
And that’s assuming there is no appreciation in the gold price.
What’s more, silver gets consumed and so no longer exists.
Gold does not – it remains. Thus, really, the ratio should be lower than 15.
The silver price is suppressed (so the story goes). The amount of silver sold
forward on the Comex amounts to more than one year’s supply. In other words,
the silver that has been sold can’t be delivered. Sooner or later this means
there is going to be a run on physical silver. And the price will go bananas.
Silver has myriad uses. It is the best thermal and electrical conductor of all metals, so every
phone, every computer, every TV, every (decent) battery, every photovoltaic cell contains silver.
Before the invention/discovery of antibiotics, silver was the world’s most important
antimicrobial agent. These antimicrobial, non-toxic qualities mean it has huge demand
in medicine and consumer products - from biocides to fridges to paint.
Its high reflectivity means it has demand in jewellery, silverware, mirrors and solar
energy. It is malleable and ductile which means it can be beaten into sheets, drawn into wire,
reduced into nanosilver or turned into paste – thus a plethora of industrial applications
require it. Then there are its catalytic properties, which means it finds use in
plastics, nuclear energy, the brazing and soldering; its photosensitivity…
In short, it is nothing short of amazing how many uses this incredibly versatile metal has.
If you want a picks-and-shovels play on cutting edge technology
and man’s never-ending progress, surely silver is it. Everything uses it!
Silver is money. The word even means money. A pound
was once a pound of sterling silver. “Argent” is silver. “Plata” is silver.
In this age of relentless currency debasement, money-printing and inflation,
you need to protect yourself. Silver, as a monetary and precious metal, does that.
And now for the rebuttals. Here are Five reasons not to touch silver
Silver isn’t cheap. Those two all-time highs are illusory figures. The 1980 high
came at the end of the inflation of the 1970s, when the Hunt brothers infamously
attempted to corner the market, triggering a panic. The 2011 high
came after a speculative frenzy accompanied by a false silver shortage narrative at the end
of a decade-long bull market. While those highs do show what’s possible, they mean nothing.
Ratios don’t matter. Who cares what the historical average is? There may be 15
times more silver in the earth’s crust, but it’s a lot easier to mine than the gold is.
Indeed most silver is produced as bi-product of mining for other metals, zinc especially.
Many of the world’s largest silver producers are not even silver companies - Glencore,
Codelco, Vedanta (Hindustan Zinc), Southern Copper, Polymetal. Newmont. Silver makes up
such a small part of their revenue that the price is (almost) unimportant.
The market sets the price. Not the earth’s crust.
Silver isn’t being suppressed. Price manipulation stories have been doing the rounds since the
1970s. They have lost their credibility. The derivatives market is always bigger than
the physical markets. If you looked at the magnitude of the global derivatives market,
you’d be packing your tins and guns and making for the hills tomorrow (with lots of silver coins).
It’s only when you realise most of them cancel each other out, then calmness returns. If the
price is suppressed, there is nothing you can do anyway. Only worry about what you can affect, and
all that. Let nefarious silver price manipulation narratives be somebody else’s problem.
Silver is useful but you don’t need much. Yes, silver’s myriad uses are amazing,
but the amount of silver required for pretty much all of them is miniscule,
so it doesn’t have much impact on prices. Current physical supplies meet demand,
particularly when you factor in recycling. If there was a genuine shortage, you’d know about it
pretty quickly. There isn’t. That’s why the price is low.
Money has moved on. Silver may have been money once upon a time,
but it isn’t now. It hasn’t been money for a hundred years or more and it’s unlikely ever to be
again. It’s as irrelevant to money as the horse is to transport. Money is no longer
physical. It is digital. And cryptocurrencies are the money of the future. Metal isn’t.
As for being a hedge against inflation, silver’s been useless.
How much money has been printed since 1980? How much has currency been debased? And silver
is trading at the same price it was 40 years ago. Come off it. It has been a rotten inflation hedge.
And so there we have it. Five reasons to own silver, and five
reasons not to. How about that for balance?
I will say this. I own silver. I don’t think I’ve ever known
an investment with as much potential. But here’s the thing. It never delivers.
It’s like that talented genius you know. They could do anything. But they always
find a way to screw up. You can only look at them, shake your head and go, “if only”.
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I’ll be back with another video very soon. IN the meantime cheerio.