Posted by Chip | Posted in Investing | Posted on 22-07-2014
It is often said that during troubling times people flock back to traditional values. In the financial world flocking back to traditional values means a return to the precious metals. In the highly volatile times we live in, traditionally strong currencies such as the U.S. dollar and the British Pound are quickly losing value. The pound has lost up to 30% of its value against other currencies like the yen in the last year. Likewise despite the USD at first being upheld at the crisis point by a rush into U.S. treasury bonds, this temporary upswing has now been reversed as fundamentals push down the USD against other currencies. As the United States attempts to print its way out of recession giving bankrupt banks vast amounts of tax payer money to attempt to stop a financial collapse even the average citizen fears what is about to come next. For history teaching us once those printing presses start rolling inflation and even hyper inflation is on the way. Unemployment and associated problems only increase the panic.
People want to move into something that will protect their underlying wealth, or even ensure they have
something, anything that they can trade. Therefore they move into resources that will not lose value. Gold has been the traditional hedge in such times, but it does not take long for the price to be prohibitive as it is a rare resource. Most Gold is held by the large investors leaving little for the small investor to get at a reasonable price. There is however another precious metal that it more easily available to the small investor – it is silver, and currently it is relative cheap to Gold with a 1:70 ratio. This ratio is has no sensible explanation given that the ratio they are found in the earth is about 1:13.5. Should silver return to its God given ratio – those holding silver are likely to become very rich.
Silver has many qualities and properties that make it a very useful industrial commodity. For example silver paste is used in 90% of solar cells – and with many predicting and even demanding the move to renewable energy, the demand for solar panels is predicted to skyrocket. Thus the demand for silver paste is correspondingly over to increase. But if one takes a detail look at just how many industrial processes silver is involved in – its demand just as a commodity has the potential to skyrocket. But many are seeing the real increase in the price of silver will be the demand for it as an investment.
Silver is molded into bullion bars and coins. As such it forms an easily transportable form of wealth. Each bar is marked with its purity and weight and normally a makers mark. If you want to see how easily these items are traded one can check on eBay and see that bullion is highly tradable and convertible into cash.
As cash continues to lose its value, silver underlying value will increase in proportion. (For example if you had left your money in the bank last year you would have seen a low interest return (3%-5%) on which you would be required to pay tax. In truth by sitting your money in the bank you are losing value when inflation is factored in. If you had put the money into silver you could have seen a 56% increase in value) But where investors see the real increase in the demand for silver will be the demand to have something other than paper with which to trade, buy and sell. Once this process again becomes accepted to the general public the value of silver will only increase further.
The only way I see silver not exploding in value would be if some massive silver mine was discovered – I am mean massive in the sense of billions of ounces. This happened when the “new world” was discover in the 1500′s, but I very much doubt with the world now explored there is another silver el Dorado not yet found. Currently silver mining production is about 600 million ounces most of which is currently used and “consumed” meaning any sizable move into silver as bullion will greatly increase its price. There simply isn’t as much silver around as there once was.
The fundamental law of supply and demand is very well known. It is a law that is beginning to be applied to silver with people realizing it is a finite resource, it is precious.
Why invest in Silver bullion? To make money on an increasingly limited and in demand resource. By having physical possession of Silver in bullion form you know you actually have it, in precise quantity and quality and not just a paper promise.