Y? Series – Why buy silver?
Gold is the ultimate hedge against a crisis. But, what about silver? Is silver a good investment? What are the reasons to invest in silver? Is silver an attractive buy today?
These are some of the questions we frequently hear about silver. And, as with any investment decision, whether silver is right for you will largely depend on your individual situation and your objectives.
Here are 8 considerations that make a strong case for silver TODAY:
1. Industrial use of silver is growing: While the investment demand of silver is at historic lows, the industrial use of silver is rising. Silver is used in batteries, solar panels, medical instruments and all kinds of electronics. In the context of modern life, the use of silver in manufacturing has become indispensable.
2. Demand for silver is growing: Global demand for silver is rapidly rising. Virtually all major mints are operating at peak production. Growing demand is particularly strong in China and India, as their cultural affinity toward silver and gold, combined with the rapid growth of the middle class in these large economies, is driving up demand.
3. Silver is becoming scarce: Similar to gold, some forecasts predict an end to silver production around 2030. Contrary to fiat currencies, which can be created at the fickle whim of central bankers, silver’s scarcity and production limitation, has a strong impact on its value.
Source: World Bureau of Metal Statistics; Visual Capitalist: http://www.visualcapitalist.com
4. Silver is cheap: Silver is much more affordable for the average investor. And although it might also be known as “poor man’s gold”, you certainly don’t have to be poor to invest in silver. The fact that one ounce of silver costs only a fraction of one ounce of gold affords significant benefits under all kinds of circumstances, and certainly in an extreme crisis scenario, e.g. when you need liquidity to buy food. Under such conditions, one ounce of gold would simply be “too much” to carry.
5. Smaller trade fractions: You can buy and sell silver in smaller fractions of value, for instance when you want to meet a smaller financial obligation.
6. Higher volatility: Silver is traded in a much thinner market than gold. That of course leads to higher volatility. That is why people interested in “trading” tend to prefer silver. Historically, silver has tended to lose more in down markets and to gain more in a bull market. We expect this outperformance to occur again in the next bull market.
7. Silver inventories are declining: One of the drawbacks of silver is its bulkiness. Storing silver is therefore relatively cumbersome and expensive compared to gold. Moreover, silver is no longer used in coinage. This might be the reason why most governments appear to be selling off their silver holdings. Finally, central banks and governments (particularly Russia and China) are buying gold instead. This has been one factor that has led to silver today being relatively cheap and undervalued.
8. Gold/Silver ratio favors silver: The gold/silver ratio (the price of gold divided by the price of silver) gives us an indication of the relative attractiveness of buying silver or gold. Over the past 20 years, the gold/silver ratio has averaged around 60:1. Currently, the ratio stands at an extreme level of almost 80:1(!), hinting at the possibility that silver is vastly undervalued.
In conclusion, adding up the above considerations, silver could currently offer a great buying opportunity and should certainly be considered as a complimentary allocation in your precious metals holdings.