Most investors were not around in 1937. This is a pity, because a radio series from that era could provide comfort today. The Netflix hit of that era was a radio series called The Lone Ranger.
The Lone Ranger was set in the American West in the late 1800s. Its hero was a masked man travelling on a white horse called Silver. The Lone Ranger fought injustice. He rescued women from kidnappers and protected villages. He was the unofficial policeman of the Wild West. He used silver bullets, as it provided a straighter shot. He left a silver bullet as his mark whenever he killed a villain. Whenever he wanted his horse to dash, he yelled, ”Hi-ho Silver!”.
Today, silver prices are galloping. It has risen over 7% this week. Fear is the best friend of precious metals. It is a safe haven after the collapse of Silicon Valley Bank (SVB). Other banks like Signature Bank and Credit Suisse are tottering.
Despite the recent silver rally, it has a long way to go. It is 92% less in real terms than its peak in 1979 and 62% less than its price in nominal terms. Silver has long traded at a discount to its rich cousin, gold. Both metals are ancient stores of wealth. But, the golden one has traded higher.
The SVB debacle has driven gold prices up 4% in 2023. It has underperformed silver by 3%. The Gold Silver Ratio (GSR) is at 87 times, which is way above its 1980 to 2020 average of 63 times.
Holding gold during trouble is a familiar tune. The case for silver is even stronger. Gold has few uses in the real world. It acts as an ornament and a store of wealth. Silver, by the sharpest of contrasts, is used for industrial and medical purposes.
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In times of trouble, silver prices rise, but the GSR narrows. The silver prices rose sharply in the 2008 crisis and 2020 during Covid-19. The GSR fell from the high 80s to around 40 in both catastrophes. Silver is more sought after than gold in calamities.
Desperation is not the only reason to buy silver. The rise of digital appliances has provided a fillip to silver. About half of the world’s silver is used for industrial purposes. These include electronics and solar appliances. Silver’s killer app is its lightness and conductivity.
It is the most conductible of the elements. The wearable technology market needs silver. Apple watches require it. The joggers that carry fitbits are sweating with silver on their wrists. Solar panels are incomplete without silver.
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The biggest demand boost for silver may be the pandemic. Silver particles kill bacteria. A hospital made of silver would wipe out many infections. Silver nanoparticles are used in bandages and face masks.
There is also a fundamental issue at hand. The market seems blind to a basic aspect of silver supply. The supply of the silver that has been mined is smaller than that of gold. The world’s gold supply consists of the capacity that has been unearthed. This can be found in museums, vaults or on people’s wrists. The world supply of gold is about six billion tonnes.
Half of the 54 billion tonnes of silver that has been mined has been consumed or destroyed. Only about a tenth of the remaining 24 billion tonnes is investible. The rest is in jewellery, silverware and statues. Silver is rarer than gold.
Silver prices rose fivefold between May 2008. Gold prices only rose 84% in that period. ETFs that track the silver price provide easy exposure to it. SLV ETF, which trades on the New York Stock Exchange, is the most widely held. Investing in stocks that produce silver may be a better bet.
From 2008 to 2011, Great Panther Silver and First Majestic Silver rose around 30-fold. First Majestic Silver is up 12% this week. The market expects its ebitda to double to US$280 million ($378 million) in FY2024. If so, it would surpass the ebitda levels of the 2008 to 2011 boom.
Silver now has uses that were unknown in the American Wild West. The Lone Ranger should have used lead bullets, not silver. The silver that he wasted could now feed the villages that he sought to save.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era. He does not hold any position in the stocks mentioned in this column. This column does not constitute investment advice of any kind