Investment: Precious metals – Silver

The previous post looked at the importance of precious metals, especially gold, when it comes to preserving purchasing power within the craziness that is our modern fiat currency system. Gold is excellent for this purpose, but it is highly recommended that you also diversify into some silver. The good thing about silver is that it is not only a store of value, but also an essential industrial metal. In fact, it is the second most useful commodity on earth, beaten only by oil, thereby quite fittingly earning the silver medal for industrial usefulness.

From an investment point of view, silver is a more risky investment than gold because it is much more volatile (visible in the chart below). It is also highly manipulated by market speculators using various kinds of totally ridiculous paper promises, thereby making it very unpredictable. The investment strategy advocated here does not care about such short term distractions though. Here we will only look at the long term outlook based on solid fundamental arguments. And yes, the long-term fundamental arguments for silver are very rosy indeed.

Firstly, silver has all the advantages of gold as a store of value. This means that, like gold, silver is also an excellent hedge against the crazy monetary policies and downright fiscal irresponsibility of Western countries. And yes, like gold, silver prices stand to increase not only because of inflation, but also because of the growing understanding of the fundamental fallacy that is our fiat currency system. As more people understand these simple facts, the demand for silver as a preserver of purchasing power will drive significant price gains.

However, unlike gold, silver prices will also soon be driven by supply shortages. As mentioned earlier, silver is the second most useful commodity on earth and you need only a few minutes on Wikipedia or Silver Insights to understand just why exactly that is. Silver is the best known conductor of heat and electricity, it is strong, malleable and ductile, it can endure extreme temperature ranges, it is highly reflective and has great aesthetic appeal – a truly amazing combination of characteristics leading to a myriad of industrial applications.

However, because silver is so cheap (more than 50 times cheaper than gold), almost none of it is recycled. And yes, as the chart below shows (click to enlarge), we are rapidly running out of silver which implies that the price will soon have to rise at least to the point where it becomes economically viable to recycle silver on a very large scale.

It is therefore clear that the silver price can be driven both by increasing demand as a store of value in the face of continued fiat money printing and by supply shortages caused by the increasing industrial demand and the fact that most silver is not recycled. Silver is therefore an excellent long-term investment and it is highly recommended that you own some physical silver. Again, offers the safest and most convenient way to do this.

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