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

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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: Making The Case For Silver

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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Mining

More Than a Precious Metal: How Platinum Improves Our World

Platinum is more than just a precious metal. Its unique properties make it a critical material in manufacturing, healthcare, and green technologies.

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How Platinum Improves Our World

Within the hierarchy of precious metals, there is only one metal that could arguably stand above gold, and that is platinum.

This is due in large part to the metal’s rarity throughout history. Its earliest known use was on the Casket of Thebes in Ancient Egypt. South American Indigenous populations also used platinum for jewelry.

But platinum’s value goes beyond being a precious metal—its specific properties have made it indispensable to the modern economy, improving both the health and the wealth of the world.

Platinum’s Industrial Applications

Today’s infographic comes to us from the World Platinum Investment Council and outlines specifically how specific platinum’s properties are used in the modern economy.

There are four primary uses of platinum aside from investment demand.

  1. Manufacturing
  2. Healthcare
  3. Environmental
  4. Renewable Power

Let’s look into all of these cases a little deeper.

1. Manufacturing

Platinum’s versatility in manufacturing has quadrupled its demand since 1980. Its catalytic properties are critical to the production of fertilizers, and more specifically, platinum’s efficiency in converting ammonia to nitric acid paved the way for large-scale fertilizer production.

Around 90% of the nitrogen produced using platinum catalysts is used to make 190 million tonnes of fertilizers each year.

2. Healthcare

Platinum is a biologically compatible metal because it is both non-toxic and stable. It does not react negatively with or affect body tissues, which makes it an ideal material for medical tools. Platinum’s use in medicine dates back to 1874 for its use in arthroscopic tools. Its stability also makes it ideal for pacemakers and hearing assist devices today.

While non-threatening to healthy cells, platinum compounds known as cisplatin can damage cancer cells and treat testicular, ovarian, lung, bladder, and other cancers. Given these crucial applications, the World Health Organization has put cisplatin on its List of Essential Medicines.

3. Environmental

Platinum is a critical material in the fight for cleaner air and in the construction of energy-efficient fiberglass. It is used in catalytic converters in exhaust systems of gas-powered vehicles, reducing the emission of harmful pollutants. In addition, platinum is used in the manufacturing process of high-end glass that improves the heating and cooling efficiency of homes and offices.

4. Renewable Power

Platinum’s catalytic properties make it critical to cleaning up air pollution, producing renewable hydrogen, and unleashing its power in fuel cells. Electrolysis, which can turn water into hydrogen and oxygen, works best when passing an electric current through platinum electrodes.

Fuel cells are set to power a new generation of emission-free vehicles, and platinum membranes are used inside of them as well.

More Than Precious

More than a precious metal, platinum has many applications that make it a critical material for the modern economy in years to come.

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Currency

Why Gold is Money: A Periodic Perspective

Gold has been used as money for millennia. People often attribute this to beauty, but there are basic physical properties for why gold is money.

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Why Gold is Money

The economist John Maynard Keynes famously called gold a “barbarous relic”, suggesting that its usefulness as money is an artifact of the past. In an era filled with cashless transactions and hundreds of cryptocurrencies, this statement seems truer today than in Keynes’ time.

However, gold also possesses elemental properties that has made it an ideal metal for money throughout history.

Sanat Kumar, a chemical engineer from Columbia University, broke down the periodic table to show why gold has been used as a monetary metal for thousands of years.

The Periodic Table

The periodic table organizes 118 elements in rows by increasing atomic number (periods) and columns (groups) with similar electron configurations.

Just as in today’s animation, let’s apply the process of elimination to the periodic table to see why gold is money:

  • Gases and Liquids
    Noble gases (such as argon and helium), as well as elements such as hydrogen, nitrogen, oxygen, fluorine and chlorine are gaseous at room temperature and standard pressure. Meanwhile, mercury and bromine are liquids. As a form of money, these are implausible and impractical.
  • Lanthanides and Actinides
    Next, lanthanides and actinides are both generally elements that can decay and become radioactive. If you were to carry these around in your pocket they could irradiate or poison you.
  • Alkali and Alkaline-Earth Metals
    Alkali and alkaline earth metals are located on the left-hand side of the periodic table, and are highly reactive at standard pressure and room temperature. Some can even burst into flames.
  • Transition, Post Transition Metals, and Metalloids
    There are about 30 elements that are solid, nonflammable, and nontoxic. For an element to be used as money it needs to be rare, but not too rare. Nickel and copper, for example, are found throughout the Earth’s crust in relative abundance.
  • Super Rare and Synthetic Elements
    Osmium only exists in the Earth’s crust from meteorites. Meanwhile, synthetic elements such as rutherfordium and nihonium must be created in a laboratory.

Once the above elements are eliminated, there are only five precious metals left: platinum, palladium, rhodium, silver and gold. People have used silver as money, but it tarnishes over time. Rhodium and palladium are more recent discoveries, with limited historical uses.

Platinum and gold are the remaining elements. Platinum’s extremely high melting point would require a furnace of the Gods to melt back in ancient times, making it impractical. This leaves us with gold. It melts at a lower temperature and is malleable, making it easy to work with.

Gold as Money

Gold does not dissipate into the atmosphere, it does not burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, and bricks. Civilizations have consistently used gold as a material of value.

Perhaps modern societies would be well-served by looking at the properties of gold, to see why it has served as money for millennia, especially when someone’s wealth could disappear in a click.

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