Will silver finally realise its potential? I’ve no idea – but I’ve just bought a load

For investors, silver is incredibly frustrating. It has more potential than almost any other metal, but that potential is never realised. So why has Dominic Frisby just bought some?

Silver coins
There is 15 times as much silver in the earth as gold
(Image credit: © Chris Ratcliffe/Bloomberg via Getty Images)

I did something I haven’t done in what feels like a long time yesterday: I bought silver. Quite a lot of it.

You know my views on silver: it might have bucket loads of potential – almost more than any other metal – but it never delivers.

Will this time be different? I doubt it. But it’s cheap, and it’s hard to find anything you can say that about at the moment.

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My calculation is that the upside is greater than the downside. And so I’ve taken the plunge.

Silver has so much potential – realising it is another matter

The silver story is one of the most compelling in the investment world. It’s got all the potential that a monetary metal should have in an inflationary environment that wiser heads than me are comparing to the 1970s. In fact, if there was a better-performing investment than silver in the 1970s. I’d like to know what it was.

It went from below $2 an ounce in the early part of the decade, all the way to $50 in 1980.

It does all the things that a monetary metal is supposed to do: physical silver in your possession is nobody else’s liability; it gets you out of the financial system; it acts as insurance; it hedges against the debasement of currency. And so on. At the same time, it has all the potential of a base metal – and base metals also tend to do well during inflation.

I could write a book tens of thousands of words long about the numerous industrial uses of silver. It might not be a very good book, but it would be long. From medical equipment to electrical appliances, it’s almost harder to find things that don’t contain silver than things that do. Every smartphone has silver in it; every computer; every jet engine; every solar panel. The best batteries contain silver; it’s used in detergent, deodorant, wart treatment, antimicrobial lab coats, 3D printing, plastics, jewellery, wood preservation, water purification – it’s like a “picks-and-shovels” play on new tech and the growing middle class of the developing world.

Annual silver demand stands at around a billion ounces. Roughly 50% comes from industry; 20% from jewellery; 25% from investment demand; and “other” (silverware and photography mostly) makes up the difference.

Supply more or less matches demand. Roughly 80% is from mining and 20% from recycling. Just a small surge in investment demand, however, and suddenly there is a shortage.

On a historical basis, silver is probably cheaper than anything else. The ratio of gold-silver in the earth’s crust is 1:15 – there is 15 times as much silver. Therefore the ratio in price between the two should be 15. Indeed, somewhere between 15 and 20 is the historical average – at least, until the 20th century and fiat money came along.

Until then, you see, we had used silver as money. Didn’t matter whether you were a farmer in Ancient Mesopotamia, an oarsman in Ancient Greece, a soldier in Ancient Rome, a bard in Medieval Europe, or a cowboy in the Wild West – your money was the same: it was silver.

But today the average isn’t 15, it’s 77. If we were to go back to the historical average, and the gold price were to remain around $1,750 an ounce, silver would go above $115. And here we are today with silver at $22.

As I say, it has a lot of potential.

Silver is the worst-kept secret in the investment world

But as I also say: it never delivers. It’s not like silver’s potential is unknown. People have been spreading the word for decades. Silver’s potential is the worst kept secret in the investment world.

You feel like you’re beating the system when you buy silver and giving it the two fingers. That only adds to its lustre.

And yet, just as it looks like it’s getting started, it sells off. And we fools who bought into the potential story are left with egg on our faces. There is no more frustrating investment than silver – except perhaps your teenage daughter.

But there are three inevitabilities in life: death, taxes and the fact that one day silver is going back to $50. I’m certain of that; if only we knew when.

When it does go to $50 it will move with the speed of a cryptocurrency you’ve never heard of – so much so, that it will be hard to get on board.

One day it will go above $50 and then who knows where it will go. I just wonder how long we have to wait.

The time to buy is when the market is boring. When nobody cares.

Silver has been weak of late. The upside looks greater than the downside – at least from the vantage point of my desk. It’s done a mini-inverted head-and-shoulders thing around $21-$22. I can’t see it slipping below $20 unless we get some kind of liquidity crisis, rush-to-cash situation – such as in March 2020.

In this world of rotation, it feels like precious metals are due a run. And so I’ve bought some silver. My instinct tells me we are going to wander back up to the mid-to-high $20s. Maybe I’m wrong and we’re going back to $15. I just don’t know.

But on a risk-reward basis, I’m betting that this is one of those times when silver’s reward outweighs its risk. At least you can’t accuse me of going into the trade without my eyes wide open.

But if we really are heading back into the 1970s, then oil goes over $150 and silver’s going to $50. Silver at $22 feels like oil felt at $50 last year: cheap – and risky. There aren’t many assets you can say that about right now.

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere.

Dominic Frisby

Dominic Frisby (“mercurially witty” – the Spectator) is as far as we know the world’s only financial writer and comedian. He is the author of the popular newsletter the Flying Frisby and is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He has also taken several of his shows to the Edinburgh Festival Fringe.

His books are Daylight Robbery - How Tax Changed our Past and Will Shape our Future; Bitcoin: the Future of Money? and Life After the State - Why We Don't Need Government

Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art. You can follow him on X @dominicfrisby