Is silver a good investment in 2023 and if so, why?
With record numbers of people investing in silver, in lieu of traditional investments, it seems to be.
But should you invest in silver with your portfolio?
Well, to help you separate the wheat from the chaff and come to your own conclusion, we’ve written the “8 Compelling Reasons to Invest in Silver in 2023”.
Let’s get started…
Silver has been used as a monetary metal for thousands of years. Silver coins were used as a means of exchange as far back as Ancient Greece, Rome and China. In fact, historically, silver bullion coins have been used more commonly as money than gold.
Most people don’t know that the dollar was once backed by both gold and silver bullion. Silver coins were an everyday part of life up until 1964. That’s when the government removed all physical silver from quarters and dimes.
Below is a U.S. silver certificate from 1923, redeemable in actual silver bullion coins.
“As a precious metal, silver is also money.” – Robert Kiyosaki
What else is currently worth less than half of what it was over 40 years ago? Silver prices reached $52.50 in 1980, and it’s currently worth less than half that.
Globally, there is now 55 times the amount of currency floating around as there was back then. If the same percentage of available capital was invested in silver today, as was in 1980, spot silver prices would be over $2,500.
Between the two precious metals, silver is known as the “Poor man’s gold”. But as we’ll see in the next point, what if buying silver coins afforded you the same protection as gold, if not better?
“The gold/silver ratio is currently around 70, which suggests silver is vastly undervalued.” – Stefan Gleason
The silver market is tiny. In fact, the gold market is 20 times larger. So it doesn’t take a tremendous amount of people or industry investing in silver to move the market price.
As gold rises, silver tends to follow suit. At a certain point, gold becomes too expensive for many investors who then invest in silver pushing it even higher.
According to silver investing legend David Morgan, “Silver tends to outperform 3:1 in bull markets. Once silver eclipses $30-50, the next move could soar to $70-$100.”
According to the Silver Institute, demand for silver was up by 16% in 2022, to 1.21 billion ounces, a record high.
Unlike gold, the majority of silver consumed is as an industrial metal. Last year, industrial demand was up to 49%. It was 45% just a decade ago.
Due to record demand, the physical silver market faced a 194 million ounce deficit in 2022, which is 4 times higher than a year prior.
As world governments push their green agendas, the need for silver rises. By 2025, nearly 10% of annual physical silver production will be consumed by just the automobile industry. Solar panels already consume 12% of global silver supply and is expected grow.
With silver being the best known conductor of electricity, it’s used in everything containing an electrical circuit. So demand for pure silver is not only showing no signs of slowing down but increasing.
Silver investing demand was up 18% in 2022, a record high.
The British Royal Mint saw record demand for both precious metals. But there has been a whopping 29% increase in silver bullion sales year over year despite rising interest rates. They also saw a 5% increase of new clients investing in silver.
The Perth Mint saw demand for silver bars and coins jump by more than 21%. They also noted solid European demand as investors rushed to buy silver bullion as an inflation hedge.
India, the world’s largest consumer of silver, imported a record 9,450 tonnes in 2022. According to Indian CEO, Chirag Thakkar, “Investment demand has been boosting imports. Investors are anticipating poor man’s gold will beat gold in coming years.”
According to the Silver Institute, a total of 1.017 billion ounces of silver was mined in 2022, but demand was 1.210 billion ounces. That’s a deficit of 193 million ounces, 4 times that of 2021 and a multi-decade high.
Only about 1/3 of the silver supply comes from pure silver mining companies. The other 2/3 is a byproduct of mining other commodities like copper and zinc.
But investment in mining companies dried up the last 2 years because economies and supply chains were shut down. So, because less capital was spent on mine development, mining companies produced less silver and other commodities.
And, with the price of silver as low as it has been, less people are willing to sell silver for recycling purposes.
So, if the silver mining companies can’t keep up with record demand, it’s only a matter of time before that’s reflected in the price of silver.
Silver prices were officially pegged to gold at 15 to 1 in 1792. Because, at that time, the idea was there was approximately 15 ounces of physical silver to every one ounce of gold.
Yet, throughout the 20th century, the gold-to-silver price ratio averaged 47 to 1. Meaning you’d need 47 ounces of silver to buy an ounce of gold.
But, according to Keith Neumeyer, the CEO of one of the largest silver mining companies, First Majestic Silver Corp, “For every one ounce of gold the world is producing, the silver miners are producing only 8 ounces of silver. Which is pretty shocking when you consider that the theory is that there is about 16 to 1 silver to gold in the earth’s crust. But we’re only mining half of that. So maybe the original theories of silver itself are actually not correct. Maybe silver is much rarer than actually the scientists think it is.”
If the price of silver were to reflect the amount of it being mined in relation to gold, the spot price of silver would have to increase by close to 700%, without gold moving at all.
It’s no secret that the world economy is in trouble. Global debt has never been higher. Inflation in the U.S. is at 40 year highs. And countries all around the world are moving away from using the dollar.
The stock market just had its worst year since 2008. While both bonds and real estate are feeling the effects of rising interest rates.
Silver is money, it’s a monetary asset, and it tends to do well during economic upheavals and as currencies are inflated away.
As resource investing legend Leigh Goehring says, “Silver will rise substantially due to monetary reasons. The U.S. dollar won’t survive in its current form. There’s no free lunch here. The debt is not sustainable and can never be repaid. And, with higher rates, the U.S. government won’t be able to pay the growing interest on that debt without printing money. Gold’s going to the $10,000 range; they’ll destroy the dollar. Gold will lead silver, but silver will surpass it, and the ratio will hit 20 again.”
The last time the gold/silver price ratio was around 20, was in 1980. If gold does hit $10,000 an ounce, like Goehring forecasts, and the ratio reverts to 20, silver will be worth close to $500 an ounce.
Or another way to look at it is silver hit its all time high of $52.50 in January of 1980. At that time, there was 1.48 trillion U.S. dollars in circulation. Currently, there are over 21 trillion in circulation: an increase of just under 1500% as seen in the chart below from the Federal Reserve.
If silver prices were to increase by 15 times, from its high of $50 when there were only 1.48 trillion in circulation… silver would be $750 an ounce.
Nobody has a crystal ball, and we can’t say for sure how high the silver market will eventually go in 2023 and beyond. But we are certain that the fundamentals are pointing to a much higher silver price than where it’s at now.
Now that you understand the supply and demand fundamentals of the silver market and why it’s poised to do so well.
What’s the Best Way to Invest in Silver?
Investing in silver is personal. It depends on what your investment objectives are.
Below we’ve listed the most common ways to invest in silver.
Buy Silver Coins
Silver bullion has stood the test of time. It’s a portable, permanent store of value, unlike paper assets.
Physical bullion has no counterparty risk, you own it outright. How many other physical assets, besides gold and silver, can you hold in your hand?
Silver bullion performs well as a defensive asset. The price of silver tends to move inversely to traditional investments. Therefore, when investors are concerned about the state of the economy, stock and bond markets or inflation, many tend to purchase silver.
Owning physical silver bullion is a safe, conservative way to protect one’s wealth in times of economic uncertainty.
One potential downside about physical silver is storing it. Silver bars and coins are bulky. It’s not difficult to stuff a safety deposit box with silver. Or even a gun safe for that matter.
If you’re investing in silver inside of a retirement account, storage isn’t a consideration because your metal is stored and insured at a 3rd party depository for a flat rate of $100.
Buy Silver ETFs
An ETF (Exchange Traded Fund) provides investors with exposure to the price of silver without having to own it. Silver ETFs track the price of silver enabling investors to profit from the price increase of the precious metal without having to store and insure it.
iShares Silver Trust is the largest silver ETF. They use a physically backed methodology allowing them to avoid using complex futures contracts.
Precious metal ETFs are an effective way for investing in silver for the short term. They’re typically very liquid and convenient because they can be bought and sold in a traditional brokerage account.
You also don’t have to worry about storing, insuring and shipping bulky bullion bars or coins.
Buy Silver Streaming Companies
Streaming companies invest in silver and gold mines in exchange for the right to buy some of the precious metals produced at prearranged fixed prices. This enables them to profit from an increase in the price of silver without the risks associated with running a mine.
Wheaton Precious Metals is one of the largest precious metals streaming companies with some of the highest exposure to silver.
Silver streaming companies can be an effective speculation on the price of silver, but you don’t own any physical silver.
You can buy silver streaming companies stocks with a traditional brokerage account.
Buy Silver Mining Stocks
Buying silver mining stocks allow you to speculate in silver companies who mine and refine silver. Known as silver miners or silver stocks, their performance depends not only on the price of silver but also exploration and the development of mines.
Silver mining is a very difficult, capital intensive business and can therefore be risky. With silver stocks, you’re betting on the people running the company more than the underlying commodity.
Silver miners are convenient to buy because most are listed on the major exchanges.
Buy Silver Futures Contracts
Buying silver futures contracts is the most complicated way to invest in silver and is typically reserved for more sophisticated investors.
A futures contract is a legal agreement to either buy or sell an asset at a predetermined price at a set time in the future between two parties that don’t know each other.
Simply put, future contracts are a bet on what the value of something will be in future.
For more sophisticated investors, futures contracts can be an effective way to bet on the price of silver in the future. Futures contracts allow investors to speculate either short term or long term while using leverage.
If you’ve made it this far, I think it’s safe to say you’re pretty open to the idea of investing in silver.
If your desire is to protect your retirement and you’re a conservative investor with an outlook for the next few years, physical silver bullion coins are really hard to beat. Maybe even a combination of both silver and gold.
We recommend sticking with widely traded, popular bullion items such as those from the U.S. or Royal Canadian Mint. Make sure to stay away from obscure “premium” or “exclusive” coins that many dealers will try to push on you. They tend to be grossly overpriced.
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