Scene 1: World Economy After the Pandemic at a Glance
The year 2022 was a depressing financial year for many investors around the world. In 2022, we saw considerable fluctuations in the global interest rates, which had and will have undesirable consequences. As stocks declined dramatically, the US dollar value elevated compared to most currencies worldwide. This behavior significantly increased the volatility across various asset classes and put negative pressure on precious metals.
Just like gold, silver is typically purchased in U.S. Dollars on the world market. So, when the dollar strengthens, global investor demand for dollar-denominated precious metals, such as silver, fall out of favor because its more expensive to acquire.
The inflation in 2021 led to a global hike in 2022, which subsequently slowed down the economy as a natural response to inflation. Based on these observations and well-proven economic algorithms, 2023 will be the year of a notable economic slowdown worldwide. In 2023, the economic demand from households and businesses will reduce due to the high-interest rates, subsequently reducing the supply-demand shortage & imbalance, lowering inflation.
On the other hand, we are observing a persistent and massive decline in US crude oil production and inventories that will increase the oil price, thus diminishing the demand for energy and bringing the energy market into balance. Oil or energy price is in direct correlation with global inflation. As long as oil storage levels drop, inflation will rise, and we will probably see a surprising “jump” in 2023.
In such a high-inflated economical environment, the demand for precious metals such as gold and silver will increase dramatically to help manage the downside risk of investments and portfolio diversification.
Scene 2: An Intelligent Investor Who Can Benefit from the Current Economic Slowdown
Naturally, any precious metal’s value is directly correlated with its demand. Thus, it is very likely that we will see a massive jump in gold and silver value as investors direct their funding to the precious metal market. But you may wonder if buying gold is a better investment or silver. We will try to answer this question in the following few paragraphs.
Since Roman times, the ratio of silver to gold was 12 to 1, meaning that with 12 portions of silver, you could buy 1 portion of gold. This ratio started to skyrocket in the early 1900s, experiencing values between 20 to 100! Economists commonly believe that when the ratio of gold to silver is very high, the white metal is undervalued, and it is time to invest in silver.
In December 2022, the precious metal markets recorded a phenomenal silver-to-gold ratio of 78:1, indicating that silver is massively undervalued!
In addition, silver should be trading many folds higher than the capacity it is trading today, experts and analysts say. Although economic uncertainties are ahead for 2023, the global economy is slowly recovering from the pandemic, and silver demand raised by around 20% in 2022.
All being said, there is a high probability that silver’s value will increase as the industrial demand for silver increases, making it a valuable asset for long-term investment assurance and portfolio insurance.
Scene 3: Industrial uses of Silver, a.k.a; Why you Should Invest in Silver
Silver is more than just a shiny object commonly found in jewelry. Silver has many unique characteristics and properties that cheaper elements can not replace, including flexibility, physical strength, malleable, ductile, thermal and electrical conductivity, and the ability to withstand extreme temperatures. These unique properties of silver continue the strong demand for this metal in industrial applications. We briefly go through a few of them to clarify the importance of this historical white element.
- Energy industry: Silver is widely used to manufacture solar panels and photovoltaic cells to capture and transmit electricity.
- Electronic industry: Due to silver’s high thermal and electrical conductivity properties, it has been extensively used in electronic devices, from flashlights to computer chipsets and cars.
- Pharmaceutical industry: Although silver is non-toxic to humans, it has antimicrobial properties and has been used in medicine for thousands of years. Silver is mainly used in dental hygiene products and eye drops to cure or prevent infection and inflammation.
- Medical Industry: Since the COVID pandemic and Russia-Ukraine global warfare conflict, there has been a growing demand in silver lined masks and wound dressings. Many manufactures in this space, such as 3M, see silver use growing in this community to address a variety of issues.
- Photography industry: There was a high demand for silver in photography and film production. Although with the invention of the digital camera, we observed a sharp decline in the silver demand from the cinema industry, X-rays still drive high demand for silver.
“Silver is the best monetary insurance against the risk of a catastrophic collapse of the dollar and other fiat currencies.” – James Rickards
Scene 4: What are the Advantages & Disadvantages of Investing in Silver?
First and foremost, silver has intrinsic value, meaning that its value will never reach zero. Besides, as we mentioned in the last section, silver is vital for the technology industry’s survival. More than three-quarters of the world’s silver reservoirs are currently being used to manufacture solar panels, medical devices, and other high-tech products. Although silver is more abundant than gold, it is still rare compared to other metals such as aluminum and copper.
Moreover, silver mining has a troublesome and tedious procedure, leading to its limited extraction and manufacture. Thus, there always will be a higher demand for silver than its supply, protecting its value in the long run.
Silver is a popular investment vehicle in India and China, the two most powerful economies of Asia, owing to its strong industrial demand. Chinese and Indian investors have collected a significant amount of silver, closely tracking silver’s market movements with wide-open eyes. Also, in late 2019 and early 2020, China launched the Shanghai Silver Benchmark, making it the world’s largest consumer of silver, sucking around 20% of the silver produced globally!
Last, silver is not tied to any paper assets or any particular type of money. Thus, no government or central bank can alter or depreciate silver’s value, which is determined only by its demand. Today, an investor is unlikely to find an American Eagle Silver coin, which is technically only worth around $23 per ounce, cheaper than $40 per ounce!
This around 75% increase in the price is a good indicator of a gigantic physical shortage and extremely high physical investment demand for silver, a true green light for silver investors!
All being said, silver is the best candidate for investors in 2023 and beyond. Although the silver price is slightly decreased due to the US dollar’s strength, as the economy slows down in the next few months, the foreign central banks will start to defend their currencies, and most likely, the US dollar value will return to its normal value range.
By depressing the US dollar value, there will be an increase in the value of all precious metals; however, silver offers the best overall upside-for-the-risk tradeoff.
The most notable risk in silver investment may be the price discrepancy between silver and physical silver bullion futures. Silver is physically-backed metal; however, this backing is associated with the ability to deliver physical silver, leading to counterparty risk. This counterparty risk is relatively large if there is a massive increase in demand for silver compared to its supply. In this case, physical silver bullion is a better candidate for investment, as it is not associated with any counterparty risk.
The Last Scene: Is Silver a Suitable Investment for Portfolio Diversification?
Silver is one of the best-performing assets in the current century, with an average growth of 10% per year since 2000. There is a finite source of silver, meaning that its extraction and supply are limited, which means upward pressure on silver prices. Also, silver recycling is a tedious and complicated process, making it not economically feasible. As the silver demand grows, the current supply may be unable to keep up.
On the other hand, silver is a universal currency and is easy to liquidate. The individuals who buy the silver are actually removing it from the banking system, eliminating the associated counterparty risks.
Silver has shown a brilliant track record of persistent value, spanning thousands of years throughout human history till our recent economic hard times, serving as a robust protection against inflation. As silver’s popularity continues to grow compared to conventional investment options, we believe it is suitable for your portfolio diversification and long-term hedging against the unprecedented economic uncertainty we are experiencing today.
“Silver is a hedge against the unknown, it is a hedge against the unforeseen.” – Robert Kiyosaki
If your looking to add silver to your retirement portfolio, read our review of the top 2023 Silver IRA investment companies in the USA to choose the right provider based on your needs. Silver IRAs, might not have the luster as a gold IRA, but that tide appears to be shifting.
Risk Disclosure: Any investments into alternative assets, including precious metals, such as silver and gold, come with an inherent risk, where you could end up making less money than what you put in. Before investing your hard-earned cash, be sure to speak with licensed professional financial advisor first. Always remember that past performance is not an indication of future returns.
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