Five reasons to buy silver – and five reasons not to

Silver is the most frustrating of metals for investors, with huge potential that it hardly ever realises. Here, Dominic Frisby outlines the case for buying silver – and the case against.

Today we consider silver. One day it will go to the moon – it has close ties with that planet, after all.

The question is whether it is worth the wait – “one day” and “within reasonable investment time horizons” are not the same thing.

The latter suggests three to five years; the former could mean a lifetime. Or more.

Five reasons you should rush out and buy silver

I’ve said it before: there is probably no investment with as much potential as silver, except perhaps some little-known tech that neither you nor I can understand. Yet there is no investment more frustrating. 

With that in mind, today I offer you five reasons to buy silver – and five reasons not to. Balance is everything, after all.

Let’s start with why you should go all in and buy.

1. Silver is cheap

The all-time high for silver was $50/oz, a price set a long time ago in the mists of time. Well, 1980. $50 was subsequently re-tested in 2011. The re-test failed. 

Today silver sits at $22.60 – that’s 55% lower. Is there any other asset, let alone a commodity, that is trading at such a discount to its all-time highs, especially with all the currency debasement that has gone on? It’s so cheap.

2. Silver should be much more expensive

There is roughly 15 times as much silver in the earth’s crust as there is gold, thus, the silver price should be 15 times the gold price. Indeed, that is the historical average. And by historical average I mean in Ancient Mesopotamia, in Ancient Greece, in the Dark and Middle Ages, in the Early Modern Era, right up to the 20th century. 

Today the silver price is 79 times the gold price. A return to the historical average would mean silver five times higher, above $100/oz. And that’s assuming there is no appreciation in the gold price.

What’s more, silver gets consumed and so no longer exists; gold does not – it remains. Thus, really, the ratio should be lower than 15.

3. The silver price is suppressed (so the story goes)

The amount of silver sold forward on the Comex amounts to more than one year’s supply. In other words, the silver that has been sold can’t be delivered. Sooner or later this means there is going to be a run on physical silver. And the price will go bananas.

4. Silver has myriad uses

Silver is the best thermal and electrical conductor of all metals, so every phone, every computer, every TV, every (decent) battery, every photovoltaic cell contains silver. Before the invention/discovery of antibiotics, silver was the world’s most important antimicrobial agent. These antimicrobial, non-toxic qualities mean it has huge demand in medicine and consumer products – from biocides to fridges to paint. 

Its high reflectivity means it has demand in jewellery, silverware, mirrors and solar energy. It is malleable and ductile which means it can be beaten into sheets, drawn into wire, reduced into nanosilver or turned into paste – thus a plethora of industrial applications require it. Then there are its catalytic properties, which means it finds use in plastics, nuclear energy, the brazing and soldering; its photosensitivity… 

In short, it is nothing short of amazing how many uses this incredibly versatile metal is. If you want a picks-and-shovels play on cutting edge technology and man’s never-ending progress, surely silver is it. Everything uses it!

5. Silver is money

The word even means money – a pound was once a pound of sterling silver. “Argent” is silver. “Plata” is silver. In this age of relentless currency debasement, money-printing and inflation, you need to protect yourself. Silver, as a monetary and precious metal, does that.

Five reasons not to touch silver

And now for the rebuttals.

1. Silver isn’t cheap

Those two all-time highs are illusory figures. The 1980 high came at the end of the inflation of the 1970s, when the Hunt brothers infamously attempted to corner the market and triggered a panic. The 2011 high came after a speculative frenzy accompanied by a false silver shortage narrative at the end of a decade-long bull market. While those highs do show what’s possible, they mean nothing.

2. Ratios don’t matter

Who cares what the historical average is? There may be 15 times more silver in the earth’s crust, but it’s a lot easier to mine than the gold is. Indeed, most silver is produced as a by-product of mining for other metals, zinc especially. 

Many of the world’s largest silver producers are not even silver companies - Glencore, Codelco, Vedanta (Hindustan Zinc), Southern Copper, Polymetal, Newmont. Silver makes up such a small part of their revenue that the price is (almost) unimportant. 

The market sets the price. Not the earth’s crust.

3. Silver isn’t being suppressed

Price manipulation stories have been doing the rounds since the 1970s. They have lost their credibility. The derivatives market is always bigger than the physical markets; if you looked at the magnitude of the global derivatives market, you’d be packing your tins and guns and making for the hills tomorrow (with lots of silver coins). 

It’s only when you realise most of them cancel each other out, then calmness returns. If the price is suppressed, there is nothing you can do anyway. Only worry about what you can affect, and all that. Let nefarious silver-price-manipulation narratives be somebody else’s problem.

4. Silver is useful but you don’t need much

Yes, silver’s myriad uses are amazing, but the amount of silver required for pretty much all of them is minuscule, so it doesn’t have much effect on prices. Current physical supplies meet demand, particularly when you factor in recycling. If there was a genuine shortage, you’d know about it pretty quickly. There isn’t – that’s why the price is low.

5. Money has moved on

Silver may have been money once upon a time, but it isn’t now. It hasn’t been money for a hundred years or more and it’s unlikely ever to be again. It’s as irrelevant to money as the horse is to transport. Money is no longer physical; it is digital, and cryptocurrencies are the money of the future – metal isn’t

As for being a hedge against inflation, silver’s been useless. How much money has been printed since 1980? How much has currency been debased? And silver is trading at the same price it was 40 years ago. Come off it – it’s been a rotten inflation hedge.

And so there we have it. Five reasons to own silver, and five reasons not to. How about that for balance?

I will say this: I own silver; I don’t think I’ve ever known an investment with as much potential. But it never delivers. 

It’s like that talented genius you know. They could do anything, but they always find a way to screw up. You can only look at them, shake your head and go, “if only”. 

Dominic’s film, Adam Smith: Father of the Fringe, about the unlikely influence of the father of economics on the greatest arts festival in the world is now available to watch on YouTube.

Recommended

Sterling continues to slide after Friday’s mini-Budget
Currencies

Sterling continues to slide after Friday’s mini-Budget

The pound has continued to fall hard and is heading towards parity with the US dollar. Saloni Sardana explains why, and what it means for the UK, for …
26 Sep 2022
Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
Johann Rupert: the Warren Buffett of luxury goods
People

Johann Rupert: the Warren Buffett of luxury goods

Johann Rupert, the presiding boss of Swiss luxury group Richemont, has seen off a challenge to his authority by a hedge fund. But his trials are not o…
26 Sep 2022
The hidden cost of employee share schemes
Investment strategy

The hidden cost of employee share schemes

Paying employees in shares comes at a cost to investors – but it isn’t always easy to see how much, says Stephen Clapham.
26 Sep 2022

Most Popular

Could gold be the basis for a new global currency?
Gold

Could gold be the basis for a new global currency?

Gold has always been the most reliable form of money. Now collaboration between China and Russia could lead to a new gold-backed means of exchange – g…
22 Sep 2022
Share tips of the week – 23 September
Share tips

Share tips of the week – 23 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
23 Sep 2022
Paypal, bitcoin, and the weaponisation of money
Bitcoin & crypto

Paypal, bitcoin, and the weaponisation of money

Recent events have shown how both business and governments can “weaponise” money and shut down dissent. What to do? Buy bitcoin, says Dominic Frisby.
22 Sep 2022