Writing about precious metals these days is the most immediately gratifying experience I have had in years. Very rarely are my opinions confirmed that fast and strongly. We are living in a rare time of massive uncertainty—from the pandemic and economic shutdowns to inflation and the war in Ukraine.
And let’s not forget about the lingering and soaring corporate and personal debt, aging demographics, the cost of climate change, depleted pension funds, and trade disputes.
All of these create an atmosphere of uncertainty that makes it hard for any analyst to predict the future, but its existence is sending many people to defensive assets, including gold and silver.
Even when times are good, everyone should be diversified, but now anyone still waiting on the sidelines may just be losing money. We are seeing metals prices grow over 26% year over year, and there is no reason for the trend to slow down. On the contrary, it is my firm opinion that this growth will actually accelerate.
Here are the four main reasons why it may be a good time to acquire silver.
1. It’s cheap and accessible
I’ve written about the main reason silver is a historic opportunity: it’s dirt cheap.
First, silver is cheap compared to its all-time high (around $47 in 2011). This means it has a lot of room to grow, especially compared to gold.
Second, silver is historically cheap compared to gold as the ratio between gold and silver is close to a historic high. When the ratio reverts to its average—which historically has happened during times of severe economic crisis—holders of silver may see explosive growth that is rarely seen in any asset (more about that below).
2. The industrial demand is massive and growing
When asked about the timing to acquire silver, a seasoned trader will probably tell you that silver does not do well when economies enter recession. Traditionally, the trader would be right:
We are seeing that institutional and retail investors, in addition to governments, are buying up silver because it’s historically a defensive asset during turbulent periods such as the current inflation, but global industrial production, thus industrial demand for commodities such as silver, is severely impacted by the lockdowns. Traditionally, that doesn’t bode well for silver.
Today is different, however. China is leading a global push to off-the-grid solar energy panels, and silver is a crucial component in such products because of its unique properties: silver is not only the most thermally and electrically conductive of all metals but also the most reflective. In other words, the harvesting of solar energy would be significantly less effective if other metals were used. This New Green Revolution results in massive industrial demand that is not slowing down even during the pandemic.
3. The price historically skyrockets during uncertain times, even more than gold
The silver market is much smaller than the gold market, so the price of silver is much more sensitive than the price of gold to movements of capital going in and out of the market.
Because of its increased volatility, silver traditionally drops more than gold during bear markets. However, during bull markets silver will rise much faster and much higher than gold. Notice how much silver increased during the two biggest precious metals bull markets in modern history:
Gains from 1970 to 1980: Gold 2,328% < Silver 3,105%
Gains from 2008 to 2011: Gold 166% < Silver 448%
Because the silver market remains tiny compared to gold, we may expect silver to outperform gold in the next bull market, just like it has done previously.
4. Worldwide supply is falling fast and can’t keep up with increasing demand
While the demand for silver, both investment and industrial, is growing, silver inventories are falling. Traditionally, governments have held large inventories of silver, but that is no longer the case. Only the US, Mexico, and India have stockpiled the metal, and overall global supply is down two-thirds compared to 20 years ago.
Add to this the fact that exploration and development of new silver mines were almost nonexistent prior to the pandemic as the demand for silver was soft. This gives you the recipe for a market that has low reserves and no ability to deal with future demand when it spikes.
As an example, a few months ago following the pandemic surge, the demand for silver overwhelmed the physical bullion market, and no silver bars or silver American Eagle coins were available for weeks. At that time, the silver spot price was $14, but you could not get a 1 oz American Eagle silver coin for less than $23. This also shows how physical silver may be a far better asset than silver ETFs—just like physical gold can be better than gold ETFs.
Let’s sum it up
The question regarding silver overtaking its previous high is not an “if” but a “when” in my opinion. In the competition for your savings dollars, you should consider an asset that has the winds in its back to achieve historic returns. This is silver.
Disclosure: Both Gold Alliance and I own large amounts of silver. We take the medicine we prescribe to others.
May you be healthy and safe during these trying times.