Here are all four parts in order:
Part 1: The Many Phases of Silver (History and Properties)
Part 2: Who Controls the World’s Supply? (Geology and Supply)
Part 3: The World’s Growing Demand for Silver (Uses and Demand)
Part 4: The Case for Silver (Silver as an Investor Asset)
Our finale looks at the case for holding silver as an asset. We look at its performance over time, and its properties as a store of value and investment.
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.
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:
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.