Epic Silver

It’s a perennial  joke between me and TW, silver. He believes it to be a stable, long-term investment for  any value investor, and I think that it caters more to jade-ring-wearing gentlemen at least twenty years older than we are–and even then gold is probably a better bet. Every so often the topic comes up, whereupon I laugh at him for sleeping with bullion under his pillow and he silently bids his time to laugh at me when he cashes it all in for a Lamborghini.

So I can’t help but be slightly interested in silver prices. After all, if I must face a last laugh, I’d rather find out about it myself.

Just read this article You Can’t Beat Silver as an Investment on FutureMoneyTrends.com, where the uncredited author makes the following claim:

…the fact is nothing will beat silver over the next 10 years.
The opportunity in owning silver and silver mining companies is epic.

My heart would have skipped a beat if he had started with that–luckily, the article ended on it, and with nothing much in the article to support the claim, I couldn’t help but giggle.

The bulk of the article educates the reader on the many uses of silver–it is a metal with applications across all human endeavour, from medicine to electronics, from jewellery to food. Yet, just because something is used widely does not make it certain that its price will steadily increase from the current price. Unless sudden new applications for the silver are suddenly discovered, I am quite confident that the market would have adjusted to accommodate for its increasingly varied uses. After all, that is the point of a commodities market(as we are often told by bankers)–to protect against sudden fluctuations in price. And if a new alloy or metal were suddenly found which could replace silver in key areas, prices are just as likely to fall, so much of the article is sizzle without a steak.

And of course, the converse is also true–just because something has very few applications does not mean prices will remain stable or fall–rare earths, the export of which were recently reduced by main exporter China, saw a price spike even though their usage is limited to electronics manufacturing. They do not have antibacterial properties like silver, but they still gave a healthy benefit to the people who invested in them.

However, two points stood out as being of potential interest:

Firstly, one of the listed uses of silver seems to have a potentially large, unrealized usage capacity–solar panels:

… in 1999 the amount of silver used in this industry was so small there isn’t even an official reporting of the number. However, 10 years later that number hit 18 million ounces, and last year for 2011, 70 million ounces were used. David Morgan, editor of The Morgan Report who runs the website www.Silver-Investor.com feels that solar demand could reach 130 million ounces per year around 2014.

That’s an almost 100% increase in usage per year. Now, 130 million ounces is roughly 3,600 metric tonnes of silver. That sounds like a lot of silver. Is it? That would depend on the total amount of silver produced a year. According to the USGS Mineral Resources Program, the world produced a total of 23,800 metric tonnes of silver a year. So an increase of 1,800 tonnes a year would constitute a fair amount of pressure (7% increase) on the value of silver. With the amount of hype going around green technologies and China’s burgeoning solar-panel industry, this could be worth looking out for.

Of course, it would take a much more dedicated analyst than me to compare that with the decreasing usage of silver from photography, which silverinstitute.org tells me stands at 2,000+ tons a year as of 2010. As even more people ditch film-photography, I think it’s reasonable to expect the number to go down even further, which may help alleviate any potential rise from solar-panel-production.

Secondly, the author claims that there is less silver than gold lying around:

right now there is less above ground available silver than there is gold, that’s right, there is less silver than gold. This trend of consuming silver and saving in gold isn’t going to stop, the above ground supply for gold will continue to grow, while the above ground supply for silver will continue to move us towards a physical silver shortage.

Once again, the USGS MRP says otherwise–not only is silver produced in an order of magnitude larger than gold, the amount of silver reserves dwarves gold by as much: 530,000 vs 51,000 metric tons. Even if we’re only talking about mined-and-realized reserves, the total amount of gold mined throughout history only comes up to less than 200,000 tons, which is barely a decade’s worth of silver mining.

I can’t imagine how the author got that comparison, unless he’s referring to bullion lying under the pillows of long-term investors. But in that case, the whole point about silver’s value as an industrially-important mineral becomes less prominent, and it’s more about the perception of silver as a precious metal, which–let’s face it–will never be as shiny as gold.

I’ll  rest a little easier tonight, knowing that I don’t owe TW a meal and an silver-coated apology just yet.

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