Few people realize that silver, not gold, financed most of the great empires in history. Romans depended on Spanish silver mines to finance their conquests. The Incas used silver – the “tears of the moon” – for trade, and silver replaced silk as a form of trade payment by the Chinese. Again, silver, not gold, was the foundation of the Spanish Empire in the 1700s. Due to poor record-keeping, the amounts of the precious metals shipped from the Americas to Europe are unknown. However, historians estimate that Europe’s gold stocks rose 5% while silver stocks increased 50%. At least 681 Spanish treasure ships sank in the Caribbean waters, with three-quarters remaining unexplored.
Argentum, the Latin term for silver, was one of the first metals discovered by humans (with gold, copper, lead, and iron). The metal was used in Mesopotamia as early as 4000 BCE for jewelry, tableware, figurines, and ritual objects. Traders used crudely-cut silver bars, commonly known as hacksilver, in trade or to store value, so its use for coins around 600 BCE is not surprising.
Gold and silver have been investor favorites for centuries, especially the former. Jewelry or investment accounts for more than 90% of the gold produced each year. By contrast, industrial uses consume more than one-half of silver produced annually, with the proportion increasing each year. The value of gold depends primarily on what another investor might pay for the metal, while the combination of its uses and investment appeal drive silver’s value. For that reason, headlines in investment periodicals like MarketWatch suggest that “Silver’s risk-to-reward appeal among ‘best opportunities in a decade.”
Silver, unlike gold, is predominately used for industrial purposes rather than investment. The metal is a vital component of water treatment, medical antiseptics, and disease prevention. More recently, it has become a crucial element in the world’s transition from carbon-based to clean energy. In photovoltaic cells for solar panels, electric vehicles, and superconductivity wiring, silver will benefit from sustained demand for several decades. The Silver Institute estimates that the total silver market in 2021 will rise to 1.025 billion ounces, with investment accounting for 257 million ounces. Industrial use is projected to grow 9% during the year. The following four reasons specify why demand will increase over the coming decades.
The spread of Covid-19 globally is a reminder of past pandemics that shattered economies and caused millions of deaths. Few people realize that the Black Plague that struck the world in the 1300s also created a demand for silver utensils and tableware, leading to the expression of “born with a silver spoon in their mouth.” Silver has a long history of a microbicide due to its antimicrobial action against harmful bacteria, fungi, and viruses. Since only the wealthy had access to silver spoons in medieval times, having a silver spoon identified the distinction between economic classes.
The use of silver to treat various maladies or prevent infection transmission dates back to at least 4000 BCE. It has been proved that the bactericidal activity of silver is well established. Silver nitrate was used topically throughout the 1800s to treat burns, ulcerations, and infected wounds until the advent of antibiotics. The overuse of antibiotics reduced their efficacy, prompting a return to silver sulfadiazine in the late ‘60s.
Thirty percent of the world’s population – approximately 2.1 billion people – do not have access to safe water today. In New York State. 8.3 million people were exposed to water contaminants in 2017. Water treatment plants worldwide use copper and silver ionization systems (considered to be the most effective water disinfection system) to protect communities from waterborne pathogens, including Legionella, Pseudomonas, and E. coli.
According to America’s Environmental Protection Agency (EPA), about 16 grams of silver are lost in each metric ton of sludge (sewer waste). According to studies by Publicly Owned Treatment Works (POTWs), each person generates about 0.16 pounds of sewage sludge each day. Assuming 80% of the 380 million Americans are served by a POTW, they produce more than 22,000 metric tons of sludge every day or 8.051 million tons annually. Each ton of sludge contains an estimated 16 grams of silver, so 4.5 million ounces of silver goes down the toilet each year and is non-recoverable.
If a POTW serves 20% of the world population, 22.9 million ounces of silver are lost each day. As water treatment plants spread to cover higher percentages of the world’s population, the silver waste will naturally increase.
The cost of electricity generation from PV has rapidly declined over the past decade to rival the cost of power by burning fossil fuels. Industry analysts project that solar power generation will double in the next five years and remain a consistent source of global demand for silver over the next ten years.
Growth in solar power capacity over the next decade is led by
While the amount of silver used in solar panels has leveled off at about 80 milligrams (mg) per cell, further declines in use are unlikely due to silver’s superior chemical and conductive properties. Manufacturers claim the useful life of a solar panel is 20-25 years due to degradation. The natural decay process will sustain significant demand for panels and silver in the aftermarket.
Electrical connections in a modern internal combustion engine-powered automobile (ICE) use silver-coated contacts to start the engine, move powered seats, open/close electric windows, heat seats, demist windows, and enable luminescent displays. In higher-end models, it also appears in areas such as autonomous emergency braking.
The market for electric vehicles (EV) and hybrid-electric vehicles (HVE) is expanding worldwide and igniting silver consumption in the automotive industry. Industry followers project that solar panels will appear in new models to reduce dependence on local power generators and extend driving mileage. The 2016 Toyota Prius was the first model to employ the technology. By 2040, Rhona O’Connell, Head of Metals Research and Forecasting for the GFMS division of Thomson Reuters, projects the global automotive demand for silver will exceed 4,000 tonnes (158 million ounces) in 2040 more than doubling today’s usage.
High-Temperature Superconducting (HTS) wire conducts approximately 200 times the current copper wire of the exact dimensions. The superior power density of HTS wire offers significant size, weight, and efficiency benefits over conventional copper and aluminum wiring. For example, an HTS motor delivering the same power as a conventional motor can do so at 1/5 the size and 1/3 the weight. Its use will drive down costs and increase the capacity and reliability of electric power systems in multiple ways:
The development of HTS wire is revolutionary, the most significant advancement in wire production in 100 years. Its applications will stretch from motors capable of propelling seagoing ships to tiny toys. Because of HTS, the generation, delivery, and electricity storage will change significantly, improving our quality of living by reducing fossil fuel needs.
Restricted Supplies of Silver
The typical response to increased demand for any product is boosted production. The world’s silver supply stems from mining, diversion from other uses, recycling, and reserves. The likelihood of any of the four channels substantially increasing production in the next 3 to 5 years is low for the following four reasons. Demand for metal has exceeded supply for the last decade, and the gap will increase as industrial demand for green energy increases.
Silver production occurs primarily as a byproduct of mining other metals. Global production of silver is about 25,000 tonnes or 881.6 million ounces. Mines in Mexico, Peru, and China collectively account for one-half of the total output. About 28% of silver is mined from silver deposits. The remaining is a byproduct recovered from mining for copper, lead, tin, and gold. Consequently, those companies mining another metal are unlikely to increase production without a significant price increase in the primary metal aside from silver.
One research report estimates that 1.679 tonnes of silver have been extracted since 3000 BCE, with 1.271 tonnes in stock in 2012 worldwide. An additional 510,000 tonnes are known recoverable deposits with a possible hidden reserve amount of 1.195 tons that might be ultimately recoverable. The silver mining production is projected to have a maximum output between 2025–2030; by 2170, the silver mines have gone empty, and silver will only come from copper and zinc mining. By the year 2300, the silver, copper, and zinc mines will be exhausted and unable to supply any significant silver amounts.
Based on historical production figures, the supply of silver from mining is likely to range between 881 million to 1.06 billion ounces per year.
According to the World Silver Survey 2019, the amount of silver used in the fabrication of jewelry and silverware peaked in 2014 at 286 million ounces. This phenomenon happened just before declining to 255 million ounces in 2020 due to its pandemics effects. Jewelry of both metals are considered luxury items whose prices are affected by supply, currency imbalances, and the economy’s general state. When gold is over-priced (140 ounces of silver to one ounce of gold) compared to its historical relationship with silver (65 ounces of silver to 1 ounce of gold), consumers demand more silver and silver/gold jewelry. The use of silver for jewelry and tableware is more likely to increase than to decline in the near-term.
Slightly over 200 million ounces of silver are purchased for investment purposes each year, including coin and metal purchases, net-physical bar investment, and changes to Exchange Traded Product (ETP) holding. Average consumption for investment purposes is about 200-210 million ounces annually.
Price increases will simultaneously increase hoarding and attract holders of silver objects to sell. The future price at which equilibrium between buyers and sellers is unknown.
As digital cameras replaced silver-based photographic film, recovery of silver from industrial use declined sharply. Approximately 17% of the annual silver supply results from recycling efforts. This is mainly due to the difficulties of reconditioning (see the story of “sludge” in reason .1 above). After 2100, most silver supply to society will have to come from recycling and urban mining of the existing silver in use.
Silver is no longer used for coinage, so few governments today maintain ample supplies. While administrations and other institutions used to hold extensive silver inventories, the only countries that warehouse silver today are the US, India, and Mexico. If industrial demand suddenly spiked, the stockpile of available silver is likely to be insufficient to the need, forcing either industry users or governments into the market to buy more.
An Extraordinary Appreciation Opportunity
In addition to the coming deficit in supply to meet demand, a purchaser of silver today is buying at low prices compared to the ratios of silver to the Standards and Poor 500 and gold:
Silver to S&P 500 Ratio
The current bull market that began in March 2009 is the longest in history. The market continues to set new highs in the face of a worldwide economic recession due to the Covid-19 pandemic, Brexit, the rise of nationalism, and the competition between the U.S. and China.
The correlation between silver prices and the S&P 500 is .3, suggesting a low to moderate positive correlation. A correlation of + 1 signals that two indexes move side by side in the same direction; a – 1 correlation means that the two indexes move at the same rate in opposite directions. The correlation of silver suggests that silver and the S&P 500 generally move in the same direction, but that silver is less volatile than the stock market index.
On February 25, 2021, 143.4 ounces of silver ($27.28 oz.) was equal to one unit of the S&P 500 (3912.22), the most significant silver to S&P 500 ratio in fifty years. From 1971 until 2013, the average rate averaged less than 40 ounces to one unit of the S&P 500. If the ratio returns to historic levels at the current S&P levels, the silver price will see substantial increases. At 60 ounces of silver equal to one S&P 500 unit – 50% above the historical ratio level, silver would have a price of $65, a 130 % increase from present price levels.
Gold to Silver Ratio
The gold-to-silver ratio is calculated by dividing the current gold price by the current silver price:
Price of Gold / Price of Silver = Current Gold-to-Silver Ratio
$1,772.11 / $27.55 = 64.32 to 1
Before the 20th century, the gold-to-silver ratio ranged between 12:1 and 15:1, notes Investopedia. Due to significant silver discoveries in the Americas and government attempts to control precious metals prices in the 20th century, the average gold-to-silver ratio increased to 47:1 during the 20th century. During the last decade, the ratio has ranged from 124.46:1 to a low of 31.68:1. Today’s ratio is over 64:1. If the ratio corrected to its average of 47:1, the silver price would rise to $37 per ounce, the price of an ounce of gold would fall to $1,297, or the prices of each metal would move. I believe it to be more likely that the price of silver will increase than the price of gold decline.
There are few guarantees in life and forecasting the future price of silver is not assured. Nonetheless, I believe an investigation of the available data suggests that the future is positive for silver and its investors. There are clear reasons why silver should be considered for investment. In my opinion, silver offers one of the safest, affordable, and protected moves that you could make in 2021.
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