The Truth About Investing in Silver

April 12th, 2020

The below references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Let's take a critical look at investing in physical silver, and address the points silver pumpers often overlook.

1. The Key Driver for Precious Metal Demand is from Investors. The Big Players Want Gold!

The key driver for gold demand is from foreign governments and central banks. Gold acts as insurance when times are tense economically, and the world markets are shaky. Regardless of how much purchasing power a foreign currency loses; golds value remains unaffected. In fact, gold prospers during these times. On the other hand, silver, which is tied primarily to industrial uses, loses demand during economic downturns. In the last 5 years countries like China, Russia, India, and Poland bought record amounts of gold. No central banks, or governments are stockpiling silver.

2. Silver Loses Its Shine During Economic Slowdowns

Yes, silver is used in technology; silver is used in water purification, semi-conductors, solar-panels, medical and dentistry applications, jewelry and even batteries and film. Therefore, silver cannot be worth more than its primary use case. During an economic recession, as production slows, so too does silver demand. Therefore, in my opinion, while gold acts as an insurance, silver is more speculative. If you don't believe me chart the price of silver during the economic crisis of 2001, 2008 and even today due to COVID-19 -- in 2020. There is no guaranteed playbook with silver, like gold. Due to its speculative nature, it could explode either way

3. Investor Demand for Physical Silver Is Down Annually

The American Silver Eagle is by far the worlds most recognized silver one-ounce coin, and for good reason; Americans themselves are the largest group of retail silver investors. If we look at production figures from the United States Mint we see that from 2010-2016 the mint was producing 30-45 million coins annually. Whereas, in recent years from 2017-2020 production is half that averaging between 15-18 million. Investors just are not interested in silver as they used to be.

It really depends how you chose to use the above point. As mentioned, silver is speculative, and being a contrarian, this represents a possible time to purchase. As the current price is quite cheap, and demand is in fact low. Maybe the tide will turn.

4. The Amount of Storage Space Required for Silver is over 100 Times Greater Than Gold

You can invest $20,000 in gold coins and hide them in your suit pocket, tucked in the back of your closet; nothing to worry about. While, Silver begins to take up a lot of space quickly, and it gets heavy fast. While grabbing larger bars like 10 oz. bars and up is more manageable, but still a burden, putting away and organizing multiple tubes of coins becomes painstakingly stressful and time consuming. In the beginning phase of stacking precious metals, quality takes a back seat to quantity, as we find joy in the heftiness of our collection. Overtime, the importance of having precious metals, that can be hidden with ease, transported without raising suspicion and having more intrinsic value condensed in a small size begins to take hold of us. Silver is difficult to manage and store once you exceed 500 ounces.

5. Silver Premiums Over the Last 5 Years Has Become Ridiculous

Silver is currently trading at $15.49 per ounce at the time of this article. An ASE is retailing for $23.70 at silvergoldbull.com. Yes, I am aware at the time of this article there is a shortage of silver due to COVID-19, but the fact remains the premium for an ASE is $8.11, or a 34% premium over spot. This is absolutely insane. If the same shops that are selling them for over $8 spot will only pay me $1 over spot for American silver eagles, I need the price of silver to rise over 25% just to break even on my purchase. The premium for silver is getting worse every year, making coin purchases difficult to justify.

Even with all the negative reasons above regarding stacking silver, in the long run; with massive inflation, the Federal Reserve printing trillions; purchasing silver would still be justifiable if the premium came down and matched closer to golds premium.