Silver_Part 4_ 06

The Silver Series: Making The Case For Silver (Part 4 of 4)

“Making The Case For Silver”
Presented by: Silver.com

Sponsored by Endeavour Silver

Part 1: The Many Phases of SilverPart 2: Who Controls The World's Silver Supply?Part 3: The World's Growing Demand For SilverPart 4: Making The Case For Silver

Making the Case for Silver as an Asset

Part 1: The Many Phases of SilverPart 2: Who Controls The World's Silver Supply?Part 3: The World's Growing Demand For SilverPart 4: Making The Case For Silver

2015 SILVER SERIES: PART 4 OF 4

“Making The Case For Silver” Presented by: Silver.com

In the previous parts of The Silver Series, we’ve shown that silver has a rich and multi-faceted history with applications in money, health, and technology. We’ve covered the metal’s supply and geological origins, as well as the growing demand stemming from industry, investment, and other areas.

However, the real question for investors boils down to this: is it worth it to hold silver bullion or equities in a portfolio?

Silver and Gold

The two major precious metals are alike in many ways. They’ve both been used as money for thousands of years, and both are considered a store of wealth today. However, to understand the nuances of silver as an asset, it is important to keep in mind a couple of key differences that it holds from the yellow metal.

The most obvious difference is that silver is used much more widespread in industry than gold. Approximately 50% of all demand stems from technological applications like photovoltaics, automobiles, batteries, and other such uses. This gives silver a potentially wider range of demand triggers.

The other major difference is that in comparison to the gold market, silver trades thinly and with much higher volatility. In 2014, there was $20.4 billion of demand for physical silver and $159.7 billion demand for physical gold. Even more interesting, these physical markets are less than 1% the size of the total markets when factoring paper trades like derivatives, futures contracts, and options.

Silver typically hits higher highs and lower lows than gold. To the savvy investor, this creates great opportunity.

Why Own Silver?

The reasons an investor should consider exposure to silver can be summed up with three key points.

1. Diversification.

Silver has little or no correlation with most asset classes such as bonds, stocks, or real estate. This is because silver prices move based on supply and demand, but also because of other factors such as the global economic environment, futures market speculators, currency markets, the level of inflation or deflation, and central bank policy decisions. Even though silver itself is more volatile than many other asset classes, it does help reduce the overall risk of a portfolio by having less correlation to other asset classes. Over the last eight years, silver’s correlation to treasuries and bonds have been basically zero (-0.07 and 0.08 respectively). It has slightly higher correlation with US equities (0.23) and real estate (0.13).

2. Safe Haven

When the times get tough, silver is your friend. Even in the most challenging environments it holds its value or bucks the negative global trends.

How did silver do in the four years surrounding the Financial Crisis? Over a period where US equities, emerging markets, and REITs were down, silver more than doubled in value from 2007-2011.

3. Fundamentals and Value

The fundamental numbers around silver make it quite clear that silver could provide extreme value as an investment. Here are some key numbers:

  • In the earth’s crust, there is 1 gram of silver for every 12.5 tonnes of rock.
  • For centuries since ancient times, the gold-to-silver ratio was 15 to 1. That means 1 oz of gold could buy 15 oz of silver.
  • In the earth’s crust, there is 19x more silver than gold by mass.
  • The “modern” gold-to-silver ratio is closer to 50 to 1.
  • Yet, in mid-2015 the ratio is 75 to 1, which means silver could be very undervalued relative to gold.
  • The silver price, in terms of USD, is also at its lowest point in five years.
  • Silver miners are even cheaper, trading at their lowest valuation in years.

Silver, the metal itself, continues to have the same impressive properties, supply and demand fundamentals, and a rich history as money. What has changed is what people are willing to pay for it at a given time.

Right now it seems that silver is being sold for half price.

That’s the end of our Silver Series. Thanks for reading!

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  • Thanks Jeff,

    I suggest we get a bit more explicit with our use of language. Perhaps Nick Larkin & Bloomberg can stop referring to trillions upon trillions of paper derivative contracts as simply “gold” or simply “silver”.

    They must have total contempt for their readers’ capacity to understand how the spot price paper maché markets operate.

    I suggest we BUY physical Silver & Gold BULLION only folks… phony derivatives be damned ( ETFs like GLD, SLV, future’s contracts, options, etc. ).

    Bloomberg source LINK – http://bit.ly/trillion-derivatives-au-ag-mkts

  • Tony V.

    Jeff Desjardins writes: “silver more than doubled in value from 2007-2011.”

    BUT he failed to mention the fact that silver has LOST OVER TWO-THIRD’S of its value SINCE 2011. I am a physical silver stacker but I get fed up with half truths and small bits of fact being dispensed by these so-called “experts” without telling the complete story. Silver has NEVER broken $50/oz and has come close ONLY twice and only then did it hit the $49 range only for a VERY short time – measured in hours if I am not mistaken, not days or weeks. The first time was almost forty years ago and only then because the extremely wealthy Hunt brothers attempted to corner the market and again in 2011 because of QE. Both times were extremely special circumstances. My reason for calling these guys out is to warn people that are thinking about getting serious into physical silver to do a LOT of research first and not read all this internet silver guru hype because that is exactly what most of it is, just hype. I will state Mr. Desjardins is absolutely correct when he says to buy physical silver because as the old saying goes; “If you don’t hold it, you don’t own it.”

Mornings are better with Visual Capitalist.coffee_email1

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