Why buy silver in early 2018? That’s the question we intend to answer in this investigation of the precious metal. We believe right now there are some compelling reasons to buy silver. Read on to learn more about our reasons why we consider silver such a good medium-long term buy.
Gold to Silver Ratio
An important gauge of the value in silver price is the gold to silver ratio. This is simply the price of gold / price of silver. So, for example in early April 2018 the prices per oz. were:
- Gold – $1341
- Silver – $16.62
- Gold/Silver Ratio ($1341/$16.62) = 80.69
The current gold to silver ratio is therefore just over 80. When you consider that the average gold to silver ratio throughout the 20th century was 47:1 (see graph below) on this factor alone silver seems undervalued. For example, for silver to return to a 47:1 ratio the price of silver would need to rise to $28.53 if gold stayed at $1341. This represents a rise of $11.91 or 72%.
Global demand exceeding global supply
According to figures supplied from The Silver Institute’s World Silver Survey for 2017 the global demand for silver continues to exceed global supply. In 2016 global silver supply was 1007.1 million ounces, whereas global silver demand was 1027.8 million ounces. This represents a deficit of 20.7 million ounces in 2017 alone.
Whilst a one-year deficit doesn’t suggest a trend when you consider the fact that 7 of the last 10 years have seen silver demand exceed silver supply and we definitely do have a trend. Infact over the last 10 years there has been a demand excess of 500 million ounces or an average of 50 million per year. It seems unlikely that silver prices can remain at their current levels when demand exceeds supply each year.
Factors positively stimulating demand for silver include the photovoltaic industry (an energy which converts sunlight directly into electricity). Silver is used in both solar panels and solar cells, industries which are set for future explosive growth. The Silver Institute projects that photovoltaic demand for silver will rise 75% between 2015 to 2018. Gartner the research company estimates that 5.75 billion cells phones will be sold between 2017 and 2019, these will require 57.5 million ounces of silver.
According to a different report by the Silver Institute, when referring to silver mines production, “We estimate that mine supply peaked in 2015 and will trend lower in the foreseeable future. Declining total supply is expected to be a key driver of annual deficits in
the silver market going forward.” Therefore, moving into the future silver production is likely to decline further and create even stronger prices for silver.
10 other reasons to own silver
If all of the above isn’t enough for you here are 10 other reasons to invest in silver:
- Affordable – trading currently at only $17 per oz it’s easy to buy and sell even small amounts of silver. It’s much easier than gold for example, which currently sells at $1341 per oz. If you wanted to buy/sell $500 of silver or gold – it’s much easier with silver!
- Balanced portfolio / spread risk – silver and precious metals (gold, platinum, etc.) in general should feature in any balanced investment portfolio. They are low-risk, highly liquid and whilst offering no yield, history would suggest offer medium-long term capital gain opportunities
- Collectable – silver in its coin form can be very interesting and collectable. Buying coins from your own country may have certain advantages too. Silver coins from around the world such as the American Eagle, Silver Britannia and Silver Krugerrand are literally worth their weight in silver plus a collector’s premium. A coin collection is an ideal way to create a family heirloom to transfer wealth across the generations
- Geopolitical pressures and concerns – Whenever tensions arise around the world investors flock to precious metals. With tensions with Trump’s administration, Putin’s Russia and North Korea the time seems right to have a proportion of wealth in a safe haven such as silver. If a global/regional war broke out, silver values would hold well.
- Inflationary hedge – analysis by BMG Group, showed that for every 1% rise in inflation, silver rose 2% over a 46-year period to 2013. That is a very good inflationary hedge and certainly better than keeping your wealth in a low interest bank account with no chance of a capital gain!
- Liquid asset – silver like all precious metals is a liquid asset. In times of need the owner can quickly sell for a known published silver spot price. Silver is more liquid than certain other assets e.g. property and owning a business, which both take time to sell
- No counterparty risk – silver is not like other asset classes which require performance by third parties, e.g. stocks/shares, ETFs, etc. Silver in its physical form has no counterparty risk
- Real money / currency – silver for thousands of years has been used as a currency. In the event of a financial systems collapse, those owning silver will be protected
- Tactile – silver is a tangible asset that can be touched, many investors like this. Digital assets can potentially be stolen through cyber-crime and are generally less trusted
- Tax efficiency – depending on the taxation policies of a country investing in silver can have certain tax advantages. Silver coins are often classed as legal tender in their country of origin so avoid certain taxes. Silver ownership can also be beneficial in areas such as inheritance planning, etc.
For more information, UK based gold and silver dealers Physical Gold have created an infographic titled The Benefits of Silver which provides lots of useful information on the value of silver and reasons to invest in this precious metal.
For the reasons we have said why not add some silver to your investment portfolio now? Whether you buy bars or coins doesn’t really matter, but adding some silver is likely to reap very positive medium-long term gains. Silver is also a useful way of adding some diversity to an investment portfolio