S ilver coins and bullion are a basic building block for making any investment portfolio crisis-proof. Silver usually retains its value during systemic crises and also maintains its liquidity. But what makes the alternative to gold so safe and why does it belong in every portfolio?
Silver can be found almost everywhere: coins, cutlery, jewelry are the obvious ones. But silver is also hidden in almost every electrical device. More than half of the demand for silver today comes from industrial applications. However, you need to be aware that the silver market is considerably smaller than its big brother, gold.
The assumption that silver gets more attention in the future can simply be deduced from the fact that only about ten times more silver comes from mining than gold. However, the price of gold is 80 times higher. Eventually this ratio will narrow down between 10:1 and 20:1. This movement is inevitable and only a matter of time. The gap between gold and silver is closing. For investors, this offers good long-term opportunities with both physical silver and silver producers’ stocks.
Why silver is a profitable investment
Over the next few months and years, silver is likely to benefit from its excellent properties as a precious metal and industrial metal. Above all, it is similar to money, but also cheaper than gold. The silver market is suffering from a supply shortfall and inventories have been reduced in recent years. Compared to gold, silver seems to be strongly undervalued. Dreaming about a three-digit silver price in the near future is not that crazy.
In contrast to gold, which is dominated by investment and jewelry production, more than half of the silver offered annually is used for industrial purposes. Of the approximately 1.5 million ounces of silver used in laptops, solar cells, televisions and mobile phones, only a small portion is recovered. The recycling rate for silver from e-waste, on the other hand, lacks far behind. The solar industry is likely to remain a strong growth market for silver sales. Market observers assume that demand for silver in photovoltaic cells could rise to around 3500 tonnes per year from 2018.
Crises boost interest in gold and silver
Geopolitical crises and the dwindling confidence in central banks, subcutaneous fears for the ban on cash and bank failures are causing investors to include more gold and silver into their portfolios again. Overall, a deficit in the silver market is expected to occur. By 2015, demand had already surpassed supply and this trend will continue.
In addition, silver production is expected to decline. Because only 45 percent of silver comes from silver or gold mines. The remainder is a by-product of copper, lead and zinc mines. On top of that, the industrial metals sector struggles with low raw material prices which in turn are leading to closures or at least production cutbacks.
Decrease in mining costs
Overall, the supply-demand situation should push up the price of silver. The global silver deposits are also gradually running out. For the producers of the precious metal, higher prices would be a blessing, as there was not much gain for pure silver producers in recent years.
Only the successful reduction of mining costs prevented many bankruptcies in the industry. Three years ago, the production of silver cost about 21 dollars per ounce, whereas today it costs only 13 dollars. Mine operators were also hit by falling energy prices. For the silver companies, this market phase is a great opportunity to rationalize and automate their production.
If the silver price rises, profits should therefore rise disproportionately and share prices should rise significantly.