Silver is an extremely under-valued asset: Historically, one could buy 15 ounces of silver with 1 ounce of gold; today 1 ounce of gold buys 77 ounces of silver (as of December 2022). See the GOLD: SILVER ratio today. If we consider the historical trend over millennia, the price of silver should be $119/oz today (price of gold divided by fifteen). On December 17st, 2022, its price was $23/oz. Silver is one of the rare commodities trading for less than it did in 1980.
Silver is used in a large number of products and industrial applications: mobile phones, digital cameras, computers, iPhones, etc. It is the second most-consumed commodity after oil, and there is no substitute for silver. This metal therefore offers good investment prospects.
Silver has played a crucial role in the automotive sector for many decades, thanks to two key characteristics: its unique thermal and electrical conductivity properties (the highest of any metal) and its high availability. The large industrial demand, which helps to drive prices up, will not erode as the price of silver rises due to the small amounts of metal contained in each product. Even a sharp rise in price will not lead to a decline in industrial demand. Once used, silver is destroyed, unlike gold, which is recycled.
With its growing role in the automotive industry (electric vehicles) and its use in the solar industry (photovoltaics), silver is an indispensable metal for the ecological transition. There is more silver used by photovoltaics than by the combined segments of goldsmithing and photography. Given the carbon neutrality commitments made by countries around the world, the use of photovoltaic energy is expected to increase and thus stimulate demand for the metal. The World Bank estimates that the development of renewable energies could result in a 4.5-fold increase in the demand for silver worldwide by 2050.
In addition to this industrial demand, there is a monetary demand: silver has always been considered as a form of money for centuries and the destruction of the purchasing power of currencies contributes to the return of silver as an essential element of a stable monetary system, as a safe haven to protect one's wealth from inflation and possible financial crises. Silver is a tangible asset. It cannot be created out of nothing (and therefore devalued). If you hold physical silver, in your own name, there is no counterparty risk (which is not the case with stocks, bonds or 'paper' money).
The more the price of an ounce of gold increases, the less accessible gold becomes for millions of people (especially in Asia), because it is too expensive. This is not the case for silver. Millions of people will rush to buy the metal as they see the purchasing power of paper money being destroyed. This global demand did not exist during the last gold and silver boom in the 1980s... this is potentially a very large additional demand.
Physical silver stocks are declining significantly, especially since the February 2021 short squeeze, which caused historic tension in the market. We know that today's silver market is based on a fractional system where there are many more virtual owners than ounces of metal available.
Investment and industrial demand for silver is increasing, but supply is becoming scarce. A contraction in mining sector capital spending and a decline in the silver stockpile point to a major reduction in supply.
One phenomenon must be taken into account to understand the potential for silver: There are enormous short positions on the silver market. With silver prices going up, investors/traders holding those positions will have to buy them back, contributing to an acceleration in the rise in prices.
As with gold, many “paper” silver certificates have been sold when there is not enough physical silver in reserve to satisfy a demand for delivery from all holders of these “paper” certificates. This abundant "paper" supply has contributed to limiting the rise in silver prices for years by diverting it from the physical silver market. But the rush to tangible assets (and thus to physical silver) will cause these paper certificates (ETFs, etc.) to explode and silver prices to rise with them. Own silver in PHYSICAL form only.
