Is now the time for amateurs to be investing in silver?

07-03-18
Why is silver overlooked favour of gold? Should ordinary small investors look at silver rather than gold? Is silver too volatile for amateur investors? I can't afford gold but should I invest in silver? Is the industrial use of silver growing? Are China and India consuming more silver? Can silver be used as a hedge against inflation? Should amateurs invest in silver or look elsewhere?

Amongst the commodities silver is often overlooked as the poor relation to gold but is this view a fair one? Obviously like gold, silver is a precious metal which can be used as  a hedge against inflation or simply a part of a diversified investment portfolio.

If one looks back over time, silver in fact has been used as the monetary metal far more often than gold. So much so in fact that our British Pound once meant a pound weight of sterling silver!

Certainly one of the advantages of silver over gold is its relative affordability. This means to the ordinary or small investor they can buy much more silver than gold with a finite amount of money. To put this into some perspective, an investor can currently buy 62 ounces of silver for the same price as a single ounce of gold. This makes it more accessible and psychologically an easier investment to make. This ratio (the gold to silver ratio) is usually used to assess whether silver is under or over valued. Again by way of perspective, the long term historical ratio has been in the region of 15:1. On this basis silver would seem currently seem to be good value!

Despite the obvious differential in price, silver is actually similar to platinum because of its industrial uses. Silver has great thermal and electrical conductivity, is very resistant to corrosion and is malleable which makes it ideal for telecoms and medical uses. However, far from underpinning the price of silver, this in fact serves to make it more volatile. For example, a lot of silver is used in very small quantities in mobile phones but the low price of silver and the small quantities used in itself means that it is much less economic to recycle this silver.

The silver market is very small in relation to that of gold and as a result money or investment moving in and out of an industry can have a disproportionate impact on the price of silver. This volatility means that in bear markets the price of silver will inevitably fall much more than other commodities, including gold. On the brighter side, however, the converse is also true – in bull markets silver will outperform markedly, rising faster and further than other commodities. Given the size of the market this is one feature of the silver market that we can expect to continue in future bull markets!

Stockpiles are also falling!

Historically, physical silver stocks were held by most Governments because in the past a lot of coinage was made of silver but that is no longer the case. In fact only three Government central banks continue to hold physical stocks of the metal, the US, India and Mexico.

And industrial use is growing!

The industrial demand for silver looks set to remain strong and even increase due to its physical properties. It is also interesting to note that unlike many other industrial metals silver is generally consumer or even destroyed in the fabrication process itself thereby making recovery or recycling impossible or at best very difficult!

Whilst supply is falling!

Following a peak in price in 2011, the price of silver has pretty much fallen since and as the price has fallen it has been very difficult for miners to continue to speculate. As a result development of new mines has suffered and therefore supply of silver is starting to diminish. This is exacerbated by the fact that in reality almost two thirds of silver comes as a by-product of the exploration and mining of other metals like copper and zinc.

And global demand seems to be growing

Against this background the global demand for silver is growing and quite rapidly! Government mints are reporting record sales and demand is nowhere more evident than in China and India.

And so….

Demand is growing, supply is falling and it would appear that the gold to silver ratio is looking very positive. So is now the right time to be investing in silver? Perhaps it is but I would suggest only for those who are in a position to weather the potential volatility that is bound to come!

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About the author

Phil Blackett

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I am an entrepreneurial retailer and wholesaler with a strong track record of achievement and success in E-Commerce within a B2C environment.

For over 30 years I have successfully founded, created and operated businesses within Men’s High St retail and online optical. I’ve built successful, high-performing teams – both technical and non-technical and always enjoyed developing profitable, long-term relationships with clients. 

It hasn’t all been plain sailing. I’ve learnt some hard lessons along the way that have shaped my ‘people first’ approach. I have a laser focus when it comes to margin, I believe profit tops turnover, cash is king and putting the customer first builds the right reputation. I’ve worked extensively with clients and suppliers all across the globe – giving me a truly international perspective in understanding cultural nuance and sensitivity.

By the very nature of my career to date, I have a very broad business experience and perspective. From developing international supply chains, merchandising and store design to raising VC funding, negotiating with banks and property agents and building high performance E-commerce sites – I believe I can bring value and insight to solve a broad range of business challenges.

Throughout my business career hindsight would have been a wonderful thing. I feel that I’m now able to share my knowledge and experience with others and help them avoid pitfalls and overcome the challenges that I’ve faced over a thirty-year career. In addition I believe my e-commerce knowledge and experience is very much at the cutting edge – enabling me to not only support ‘traditional’ small business – but also add value to those looking to establish themselves in the digital economy.

Additional Skills

E-commerce business seeding and transformation

I am also a Director of London Gold Bullion.

https://www.londongoldbullion.co.uk

 

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