DOES IT REALLY MAKE SENSE TO INVEST IN SILVER?

2 Narratives - 1 Truth

For years I have heard 2 battling narratives when it comes to owning physical silver as an investment or insurance policy:

1. Silver is a loser! It hasn’t done anything for 50 years – and it will never do anything! It won’t protect you!
2. Silver price is growing and is set to boom because it is the most underinvested asset in the world. Its history as a monetary metal will protect you from instability in the financial markets.

Setting aside dreams of silver going to $1000 by next week or staying at $20 for the next 50 years – what is the objective truth? Is silver a losing asset, or are there real reasons to make silver a part of your portfolio today?

To answer these questions, this article lays out the real-world ways that silver has performed & protected its owners over the past 25 years. It does not include anecdotes from the great depression or legends from the ancient world – these are the real reasons why I own silver and why I think everyone should have some!

More on the basics of silver investing from Seeking Alpha here:

https://seekingalpha.com/article/4456438-how-to-invest-in-silver

 

But Isn’t The Price Of Silver Way Down Since 2011?

In April 2011, Silver hit a high of $49.83 per troy ounce and then quickly corrected, reaching an average price of $15.66 by 2015. Many of silver’s critics like to point to this as proof that Silver is a loser, especially considering that it has not been able to recapture that nominal high more than a decade later in 2024.

Sadly, these critics (many of whom bought the top for silver) ignore some vital facts about the causes of the blow-off top as well as the performance of silver leading up to and following it. They are:

1. In the 5 years leading up to the blow-off top (2005 to 2009) the price of Silver doubled from $7.31 to $14.67!
2. With the world facing a full-on financial crisis, investors fueled by fear, speculation and hype piled into Silver driving the price up in an unsustainable fashion (they did the same things for gold – and we don’t call gold a loser).
3. In the 5 years of decline following silver’s blow-off top (2013 to 2017), the average annual price of silver remained above the pre-blow-off top highs (with the low reaching $15.66 in 2015).
4. In the 5 years following the blow-off top (2013 to 2017), the average closing price of silver was $18.55 vs. $12.38 in the 5-year period before the blow-off top (2005 to 2009).
5. Since 2020, silver has continued in a steady and sustainable upward price channel fueled by investment demand and growing industrial demand (driven by green energy agendas & consumer electronic demand).
6. People who have embraced a long-term silver buying schedule have tangibly benefitted from silver’s overall price growth (more on that below).

 

More silver price data here:

https://www.macrotrends.net/1470/historical-silver-prices-100-year-chart

 

What Lessons Should We Take From The 2011 Blow-Off Top For Silver?

Lesson 1: Silver disappointed many first-time buyers who entered in the period from 2010 to 2012. They got emotional and were swept away by the hype. They believed silver was going to be their ticket to wealth – like a get rich quick scheme. The truth is, they acted irrationally, and now have a negative emotional reaction to silver driven by their own bad decisions.

 

More on the emotions of investing here:

https://www.linkedin.com/pulse/warning-when-investing-keep-your-emotions-check-lester-g-

 

Lesson 2: Interest in buying metals grows as price increases. In fact, this is true for almost all investment vehicles. People pile into whatever is already growing trying to get a piece of the action. As that interest grows with the price, more new investors gravitate towards silver due to its affordability vs. gold. Due to silver being a much smaller market (in value than gold), that increased interest is a major reason why silver can move much quicker than gold in a metals bull market.

Real time market caps for the top assets in the world:

https://companiesmarketcap.com/assets-by-market-cap/

 

Lesson 3: The best way to protect yourself with silver (this applies to gold too) is by getting on a purchase schedule (DCA – Dollar Cost Average) and taking a long-term approach. That means buying a regular amount every week, month or 3-months to purchase the average price over time. This way you benefit from the long-term protection silver has offered since it entered its upward sloping channel in 2003. Additionally, this ensures you avoid getting too much price exposure at the highs and ensures you have the confidence to buy the lows (more on that in the next section).

More on the Dollar Cost Average strategy here:

https://www.investopedia.com/terms/d/dollarcostaveraging.asp

 

Silver vs. Cash Since 2000

So, now that we have unpacked the indefensible position that silver is a loser because the price came down after 2011, it’s time to explore how a Dollar Cost Average strategy has performed over the last 25 years.

To illustrate this example in the easiest way to understand, I have prepared a table (below) showing how $200 a month saved in cash has performed vs. silver since 2000. This is how it works:

1. The cash calculation assumes $200 saved per month at a return of 5% per year (very generous considering the low interest rates of the 21^st century).
2. The cash returns do not assume any tax taken out (which is also very generous as in many places taxes are paid on fixed income from savings).
3. For silver, I have used the year’s average closing spot price for the purchase price and have added a 15% premium. This way nobody can accuse me of presenting unrealistic numbers.

More on silver moving averages here:

https://www.barchart.com/futures/quotes/SI*0/technical-analysis

 

For me, the most important things I take out of this table are the following:

1. Silver has performed much better than cash savings returning 5% per year (+134% vs. +91%) – which means it has also outperformed inflation!
2. Silver has room to further increase vs. cash as metals prices tick up, and returns on cash savings go down with interest rate cuts.
3. Despite people thinking the price of silver in 2011 was $50 an ounce, the average closing price was 30% lower than that at $35.12 per troy ounce (this blows a huge hole in the “silver stinks” narrative).

 

What Is Driving This Upward Movement In Silver Price? Is It Sustainable?

The fundamentals for silver are strong (growing demand) whilst the fundamentals for fiat currencies remain weak (rapidly growing supply). Remember, US Dollars can be printed – silver cannot be printed!

Demand for silver is exploding due to a growing need for it in industry. The supply of silver is struggling to keep up with this growing need (details in table below) and has been the primary driver of silver’s upward price movement since 2003. In fact, total demand for silver has exceeded supply for 6 straight years! Considering a decade of little to no investment in mining, these shortages may get worse, and it could result in 2011-like spikes in price that last longer than a couple months (possibly years).

With new silver-hungry technologies coming online every decade (Samsung’s new silver battery is an excellent example of that) – I expect this trend to be maintained and result in significantly higher prices for silver over the long-term.

More on silver demand & deficits here:

https://www.silverinstitute.org/silver-supply-demand/

 

But What About SHTF? Does Silver Protect You In Times Of Crisis?

A common term thrown around amongst precious metals investors and stackers is SHTF (describing a bad situation when “poop hits the fan”). Many people who talk about this incorrectly imagine a situation where all of civilization will collapse and life will look like something out of The Walking Dead television series.

Although it’s true that war has destroyed some places to the point of no return in modern times – it remains less common than the threat of major currency devaluation. Currency devaluation is something that is not only common but is becoming a larger threat to people because of digital currency (including coming CBDCs). CBDCs make it easier for the money supply to be expanded and currency devalued.

A great 21^st century example of this happening in an industrialized country is what has happened in Turkey over the past 6 years. After years of relatively tame inflation (for Turkish standards), in mid-2018 it took off. It exceeded 20% for the first time in September 2018 and by October 2022 it had reached as high as 85%!

More on Turkish inflation here:

https://tradingeconomics.com/turkey/inflation-cpi

 

This is what SHTF (doodoo hitting the fan) looks like! It is not a sudden worldwide disappearance of civilization. SHTF is the gross abuse of power by bureaucrats at the expense of the people (usually in a specific geographic region). In this case, hyperinflation in Turkey - and it can happen anywhere at any time!

The consequences of Turkish hyperinflation serve as an example of what we should expect if it happens to us. They are:

1. Devalued cash savings in banks (many lost their life savings).
2. Crisis for retirees on fixed incomes (adjustments to benefits did not keep pace with inflation).
3. Flight away from local currency into hard assets like real estate, gold, and silver (made real estate unaffordable for many).
4. Partial dollarization of the economy (US Dollar).
5. Forced more people to seek employment outside of the country.

As bad as things were, and still are in Turkey, not everybody experienced the consequences of hyperinflation the same way. Silver stackers and investors – those who understood the fact that financial crisis can hit at any time - weathered the storm much better than others.

In fact, those who held some wealth in silver saw the value of their holdings appreciate faster than the high rate of inflation. Not only was the value of their hard-earned savings protected, but it could be used to tangibly increase their living standards if they decided to use it.

More on the Lira exchange rate vs. the US Dollar here

https://www.tradingview.com/symbols/USDTRY/

 

So, when somebody tells me that silver is no longer a monetary metal or claims that it can’t protect you in the event of a financial crisis or hyperinflation – I say the facts disagree with your feelings! The Turkish hyperinflation example concretely supports silver’s status as a wealth protection mechanism in case of catastrophe or even SHTF.

 

Final Thoughts

Yes, there are reasons for some people to be dissatisfied with the performance of silver, but they aren’t good reasons. Silver demand is sustainably growing and its dual role as an industrial and monetary metal is not likely to change any time soon.

Although silver is not a substitute for gold in a precious metal portfolio – it represents a unique chance to reduce your exposure to inflationary risks while increasing your exposure to high speculative returns. This is why I own silver and will continue to do so!