Is Silver A Key to the Future?





The recent news about a potential attempt to squeeze the price of silver higher has attracted the interest of millions of people who may be new to the precious metals markets and in particular the silver market. The purpose of this blog will be to provide fundamental educational resources to learn about these markets and their longer term prospects. Having followed these markets now nearly 20 years, I have learned that having a solid basic educational foundation is important to anyone who may be thinking about investing in this market sector. It is not the purpose of this blog to offer investment advice in any way. 

Basically, as we follow these markets, we will look for the highest quality information sources to provide readers here with the tools to better evaluate the precious metals market sector and therefore be in a better position to make personal decisions in the months and years ahead as they consider where to allocate their investment capital. 

Since silver has been in the news in a big way most recently, let's start with a few basics on silver with a Q&A style format below. 


Q: What is silver?

A: Silver is a metal (not a rock) listed under the symbol Ag in the Periodic Table of Elements. 

Q: How do we get silver?

A: Silver is mined out of the ground in various ways. Large deposits of land that may have soil containing silver on or near the surface use "open pit mining" to extract the silver from the ground. Silver veins that may be further underground are often mined differently in underground tunnels or shafts (this is often called hard rock mining -see pics here). Silver is often found in combination with other metals such as gold, lead, and zinc. Silver is found mixed with soil and rocks and must be processed to separate out the pure silver. 

Q: What attractive properties does silver have?

A: Silver has several attractive properties including a bright luster, ductility (can be made into thin sheets), malleability (easy to shape), conductivity (the highest electrical and thermal conductivity of any metal), solubility (ability to be dissolved), and density (it is a dense metal).

Q: How is silver used in industry?

A: Silver is widely used for a variety of purposes due to the properties listed in the Q&A just above. Silver is used in making solar panels, electrical connections and circuits, silverware, jewelry, mirrors, special paints, computer chips, and in a variety of anti bacterial medicinal products. Silver is used in cars today and it is expected that silver will also play a role in electric vehicles as they become more widespread in the years to come. Researchers continue to find new applications for silver that may increase demand for the metal in the years to come.

Q: Do People Invest in Silver?

A: Yes. Both silver and gold have a long history of being used as money. In addition many people view them as a type of hedge or insurance against a devaluation of their local national currency in times of high inflation. In this arena, gold and silver diverge a bit. Gold is viewed more strictly as an investment vehicle since it is used far less extensively for industrial purposes. Silver has more of a dual function since a lot of silver demand comes from industrial usage and lot comes from people holding it for monetary insurance or investment reasons. You can see the various kinds of demand for silver at this link to supply and demand for silver produced by the Silver Institute.

Q: In what ways do people invest in silver?

A: There are several ways people invest in silver. Since silver is an actual metal that always has some "intrinsic" value, some people prefer to invest in actual physical forms of silver. There are a variety of silver products available including silver coins minted by government mints, generic silver coin like products called "rounds" often imprinted with some kind of logo or artistic design, and various sizes of silver bars.  See this page for more information on various forms of physical metals.

Other people like to own silver, but prefer not to have to store it themselves. There are a number of dealers who offer ways for people to buy silver (or gold) and have it stored in a vault somewhere in their name. People who like this concept tend to prefer their silver or gold be "allocated" to their account meaning there are actual physical quantities of the metal being held in their name for their account allowing them to take physical possession if they wish to do that. Here is one example of a program that works like that. Another example is One Gold which offers an opportunity to own gold and silver vaulted by others and easy to quickly buy or sell.

Some people are more interested in just having exposure to the price of gold or silver or in trading it rather than holding possession of actual metal for long periods of time. This type of investor is more likely to be involved with various so called "paper" versions of silver such as the SLV ETF which trades more like a stock on the NYSE. In theory, one share of SLV relates to one ounce of silver, but SLV usually trades at a 5-10% discount to the quoted price for silver and likely does not hold an ounce of silver for every share of SLV issued to investors. Also, anyone who wants to own actual physical silver should not view something like SLV as a way to obtain the physical metal. An example of an alternative to SLV is the silver fund operated by Sprott Money (PSLV) which also trades like a stock, but purports to back every share with actual allocated silver metal. This article looks at Gold & Silver ETF's more in depth.

Beyond this, some investors willing to take on more risk will invest in mining companies that produce silver in an effort to gain increased leverage in their gains if the price of silver goes up. Of course when silver prices go down, this increased leverage tends to work in reverse as well. Also, an investment in a mining company means the investor must be aware of more than just the price of silver (see this article). The quality of the management team, the prospects for efficient/accretive future growth, geo political risk in various mining districts, and natural disasters impacting production capabilities are examples of other risk factors related to owning stock in a mining company.

Q: How does the silver market compare to other global markets?

A: It is tiny compared to most other global markets as you can see from the graphic at this link created in May 2020. While the silver market has grown since then, it is still a very small market compared to gold for example. It is miniscule compared to the world stock markets, the global supply of money or the global amount of debt. This means that not as many people are following the silver market, but it also means that a much smaller move of investment capital into the silver market could impact the price significantly. as compared to gold or stocks. The market cap of some of the stocks of individual major corporations is larger than the entire market cap of the global silver market. (Amazon is one example of a company worth more in market cap than the entire silver market) 

Q: Is Silver a Key to the Future?

A: Since that is the title of this article, we should probably address this question. There are solid reasons to believe that silver can be a key to the future. It is clear that governments around the world are moving towards encouraging a "greener" energy future as we see continued growth in products like solar panels and electric vehicles and long life batteries. Silver is an important component in all these products and virtually every forecast predicts rising demand for the use of silver in these sectors in the future. The future of silver as an investment or as a form of insurance against devaluation of national currencies is less predictable, but also more potentially explosive. This will depend upon public reaction to monetary policies that tend to devalue their national currencies over time. Historically, people have turned to both gold and silver to insure against that risk. Now cryptocurrencies like Bitcoin have entered the picture, perhaps drawing off some demand that in the past would go to gold and silver. The recent news about a possible "silver squeeze" and the very short term pop in the silver price suggests that silver remains in the back of the minds of potential investors and has perhaps attracted the attention of some new younger investors; but whether it will sustain that interest over the long term is a question yet to be answered. At this time, it appears that industrial demand for silver will likely be very much a key to the future and that investor interest in silver will probably continue to lurk in the background and surface from time to time in response to various monetary policies and geo political events. New groups of young investors in silver are springing up. It seems Sprott Money also sees a bright future in the years ahead for silver as you can see from this recently released report.


Added educational note: The video below explains ten fascinating uses for silver. Silver is an amazing metal mostly taken for granted. But it may be a key component in the future.




Added news note 2-8-2021: Annual Silver Production Drops 6% in 2020.

Added news note 2-10-2021: Silver Demand Projected to Rise in 2021

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