Jeff Clark, Senior Analyst, GoldSilver
Is silver a good investment? Why should someone buy it?
It’s natural and even prudent for an investor to wonder if a particular asset is a good investment or not. That’s especially true for silver, since it’s such a small market and doesn’t carry the same gravitas as gold.
But at this point in history, there are very compelling reasons to add physical silver to your portfolio (and only one of them is because the price will rise). Here the top 10 reasons why every investor should buy some silver bullion…
Silver may not be part of our currency, but it is still money. In fact, silver, along with gold, is the ultimate form of money, because it can’t be created out of thin air (and thus depreciated) like paper or digital forms. And by real money, we do mean physical silver—not ETFs or certificates or futures contracts. Those are paper investments, which don’t carry the same benefits you’ll find in this report.
Physical silver is a store of value, just like gold. Here’s why.
• No counterparty risk. If you hold physical silver, you don’t need another party to make good on a contract or promise. This is not the case with stocks or bonds or virtually any other investment.
• Never been defaulted on. If you own physical silver, you have no default risk. Not so for almost any other investment you make.
• Long-term use as money. A scan of monetary history shows that silver has been used in coinage more often than gold!
As Mike Maloney says in his best-seller, Guide to Investing in Gold and Silver, “Gold and silver have revalued themselves throughout the centuries and called on fiat paper to account for itself.”
Owning some physical silver provides you with a real asset that has served as money for literally thousands of years.
Of all the investments you own, how many can you hold in your hand?
In a world of paper profits, digital trading, and currency creation, physical silver stands in contrast as one of few assets that you can carry in your pocket anywhere you go, even another country. And it can be as private and confidential as you want. Physical silver is also a tangible hedge against all forms of hacking and cybercrime. There’s no “erasing” a silver Eagle coin, for example, but that can certainly happen to a digital asset:
What if I said you could buy a hard asset at roughly 1/65th the price of gold—and it would protect you just as well against inflation?
That’s what you get with silver! It is much more affordable for the average investor, and yet as a precious metal will help maintain your standard of living as good as gold during periods of monetary dilution.
If you can’t afford to buy a full ounce of gold, silver can be your ticket to holding some precious metals.
This is also true for gift-giving. Don’t want to spend over a $1,000 on a present but would like to give a hard asset? Silver just made it more affordable.
Silver isn’t just cheaper to buy, but can be more practical when you need to sell, too.
Maybe someday you don’t want to sell a full ounce of gold to meet a small financial need. Enter silver. Since it frequently comes in smaller denominations than gold, you can sell only what you want or need at the time.
Every investor should have some silver around for this very reason.
Keep in mind that silver coins and bars bullion can be sold virtually anywhere in the world.
Silver is a very small market—so small, in fact, that a little cash moving into or out of the industry can impact the price to a much greater degree than other assets (including gold).
This greater volatility means that in bear markets, silver falls more than gold. But in bull markets, silver will soar much further and faster than gold.
Here are a couple good examples… check out how much more silver gained than gold in the two biggest precious metals bull markets in the modern era:
Gain from 1970 low to 1980 high
Gain from 2008 low to 2011 high
You might say silver is gold on steroids!
We can expect this outperformance to repeat in the next bull market, too, because the silver industry remains tiny.
Governments and other institutions used to hold large inventories of silver. But today, global stockpiles are at record lows. In fact, the only countries that warehouse silver are the US, India, and Mexico.
Look what’s happened to those inventories since 1996.
The amount of silver held by governments worldwide is equal to only three weeks of mine supply!
A big reason governments don’t hold a lot of silver is because coinage is no longer made from the precious metal. But if future industrial needs are difficult to meet, governments will be ill-equipped to support them.
Believe it or not, you don’t go one day without using a product that contains silver.
It’s used in nearly every major industry, from electronics and medical applications to batteries and solar panels. Silver is everywhere, whether you see it or not.
As Mike says in his book, “Of all the elements, silver is the indispensable metal. It is the most electronically conducive, thermally conductive, and reflective. Modern life, as we know it, would not exist without silver.”
Due to these rare characteristics, the number of industrial applications for silver has skyrocketed. In fact, industry now gobbles up more than half of all silver demand.
Silver is used in a wide number of industries and products, and many of those uses are growing. Here’s a few examples…
• The average cell phone contains about one-third of a gram of silver, and cell phone use continues to climb relentlessly worldwide. Gartner, a leading information technology research and advisory company, estimated 5.75 billion cell phones were purchased between 2017 and 2019. That means 1.916 billion grams of silver, or 57.49 million ounces, were used in this application alone!
• The average electric vehicle uses between 25-50g of silver per vehicle—almost twice the average of an internal combustion engine. And the growth in electric vehicles is projected to be so high that the Silver Institute estimates automotive demand will become the second largest source of industrial demand for silver by 2024. And the largest source of demand is
• Silver use in photovoltaic cells (the main component of solar panels that generates electricity) was next to zero in 2006, and now gobbles up more silver than any other application. And since the cost of solar installation has fallen by 90% during that time, it has only gotten more attractive to both governments and consumers.
• Another common industrial use for silver is as a catalyst for the production of ethylene oxide (an important precursor in the production of plastics and chemicals). The Silver Institute projects that due to growth in this industry, a third more silver will be needed by 2025 than what was used in 2020.
There are a lot more examples like this, but the bottom line is that due to its unique characteristics, industrial uses for silver continue to expand, which means we can reasonably expect this source of demand to remain robust.
But that’s not the whole story… unlike gold, as much as 30% of silver used by industry is destroyed during the fabrication process or the product simply thrown out after use. It’s just not economic to recover every tiny flake or sliver of paste from millions of discarded products. As a result, that silver is gone for good, and limits the amount of supply that can return to the market through recycling.
It’s even worse if you look at all the silver ever mined.
So not only will the ongoing growth in industrial uses keep silver demand strong, millions of ounces cannot be reused. That might be a problem, because…
The silver price crashed after peaking in 2011, and over the next five years it fell a whopping 72.1%. As a result, miners had to scramble to cut costs to turn a profit. One of the areas cut dramatically was exploration and development of new silver mines.
It doesn’t take a rocket scientist to understand that if you spend less cash looking for silver you will find less silver! That drought in exploration and development is starting to take effect, as this chart shows of the output from the top 10 largest silver producing countries.
This has had an impact on the amount of supply that comes from the mining industry each year. The past four years have never seen a drop like we’re currently experiencing.
Part of the explanation to the drop is that about two-thirds of silver mine supply comes as a byproduct from base metal operations (copper and zinc, for example). But these miners have also spent less on mine development—which means they will produce less silver, too.
Meanwhile, low silver prices have affected how much scrap metal is available, too—there’s less incentive to turn in scrap metal if the price is lower.
These realities have set the stage for a peak in silver supply. If demand stays at current levels, it will be difficult for everyone who wants silver to get as much as they need. And don’t look now, but…
Despite the effect of the global pandemic, global demand for silver is growing. Virtually all major government mints have seen record levels of sales, with most already operating at peak production.
Surging demand is nowhere more evident than China. This behemoth market has a long history of cultural affinity toward precious metals. And with its population growing (the opposite of what is happening in the West), its tremendous appetite will continue.
This kind of demand doesn’t happen in a vacuum. Sooner or later there will be consequences when surging demand meets crimped supply—and those consequences are all positive if you own the metal.
Last, the gold/silver ratio (the price of gold divided by the price of silver) can give clues about which metal might be the better buy at any given time. Especially when the ratio reaches an extreme…
The gold-to-silver ratio averaged 47:1 in the 20th century. It’s averaged 56:1 since 1968, so a ratio above that level makes silver a good buy relative to the price of gold.
You can see that the ratio sank to almost 30 at the peak of the bull market in 2011. It reached as low as 14 in early 1980. This compression in the ratio shows just how much silver can outperform its cousin gold. It also confirms it is undervalued compared to gold.
• Add all up the reasons and silver just might be the buying opportunity of the decade.
It’s hard to find an asset with a greater distortion between price and fundamentals. Not only is it a good hedge against crisis, the price will be forced up by a perfect storm of fundamental factors.
Buying physical silver is relatively straightforward. You can buy from a local coin shop, but believe it or not costs are usually lower at online stores like GoldSilver.com. That’s because overhead is much lower, and shipping and insurance costs are usually included with a minimum order (which isn’t all that big).
Setting up an online account is not much different than establishing a bank account, and shopping is just like using Amazon. Once your remit payment, your metals can either be shipped to you or deposited into one of our surprisingly affordable storage vaults.
And if you’re on a budget or simply want to accumulate in the increments of your choosing over time, you can use our InstaVault gold program or Instavualt Silver program.
Silver has not historically performed as well as gold during recessions and stock market crashes. As mentioned above, this is due to its high industrial use—if economies weaken. demand for this portion of silver normally declines.
But as this article has shown, there are numerous factors working in silver’s favor for the foreseeable future. And like gold, silver is a monetary metal and thus will respond to monetary dilution and fiscal unrestraint. Until the current system is retooled to discourage rampant currency creation and politicians are more financially responsible, history says silver will remain a strong asset to own.
An active investor with a love of writing, Jeff Clark is a globally recognized authority on precious metals. As the son of an award-winning gold panner, with family-owned mining claims in California, Arizona, and Nevada, Jeff has deep roots in the industry. Jeff regularly speaks at precious metals conferences, serves on the board at Strategic Wealth Preservation in Grand Cayman, and provides exclusive analysis and market commentary to GoldSilver customers. Follow Jeff on Twitter @TheGoldAdvisor