Here’s Why You Should Buy & Invest in Silver

Introduction

Silver has been used as money for much of recorded history due to its many unique qualities. Beyond its monetary and aesthetic properties, silver holds significant intrinsic value from its extensive industrial, electronic, and medical applications. Additionally, silver is a popular investment asset that transcends cultural boundaries. In this article, we will explore the numerous reasons why physical silver is both a form of money and one of the best investments you can make today.

Why Silver is Money

After thousands of years of use as money, silver has become inextricably linked to the concept of currency, with many contemporary terms for money originating from its historical use. For instance, the word "dollar" comes from the German word "Joachimsthaler," referring to a 16th-century silver coin minted from the Joachimsthal mine's silver. The British pound is named after a "pound" weight, originally equivalent to 240 silver sterling pennies made from one pound of silver, giving rise to the term "pound sterling." Similarly, the Indian rupee, the French word for money ("argent"), the peso used in Spanish-speaking countries, and the Spanish slang term for money ("plata") all trace their origins back to silver.

The United States Constitution even declares that "No State shall... make any Thing but gold and silver Coin a Tender in Payment of Debts," underscoring the historical importance of silver. The Coinage Act of 1792 further defines the dollar as 371.25 grains of silver. Until 1965, American dimes, quarters, half-dollars, and dollar coins were minted from 90% silver before being replaced by cheaper base metals. Once the United States Mint ceased producing silver coins, people began hoarding them due to their higher intrinsic value compared to the new coins—a phenomenon known as Gresham’s Law, which states that "bad money drives out good." Even today, pre-1965 U.S. silver coins remain highly sought after by investors and collectors.

Though silver is not typically used in ordinary day-to-day transactions in this era, it is money according to the most widely accepted definition of money for the following reasons:

• It can be used as a medium of exchange in transactions
• It is a store of value that allows the preservation of wealth
• It acts as a unit of account for transactions and valuations
• It provides a standard of deferred payment such as allowing a debt to be valued or paying for goods and services at some point in the future

Money must also be:

• Durable
• Easily divided into various denominations and units
• Inherently valuable
• Scarce to keep its value high
• Fungible (i.e., easy to substitute one unit for another)
• Widely accepted
• Portable
• Difficult to counterfeit

Like gold, silver unequivocally fulfills all the essential functions and characteristics of money, making it an excellent store of value. It stands out due to its lack of counterparty and default risk, unlike stocks and bonds, which are subject to the risks associated with their issuing entities—corporations, banks, and governments. Additionally, silver retains its purchasing power over time, in contrast to paper currencies that continuously depreciate as governments and central banks expand the money supply, fueling inflation.

Chart: a 200-year history of silver prices. Source: http://www.goldchartsrus.com

Silver’s Unique Properties and Uses

Silver possesses a plethora of unique properties that make it highly valuable across various industries, including electronics, the production of chemicals, alternative energy, medicine, and photography. It boasts the highest heat and electrical conductivity of all metals, making it indispensable in batteries and other electronic devices. Silver's exceptional reflectivity enhances its utility in mirrors and scientific applications, while also contributing to its aesthetic appeal in silverware and jewelry.

Despite the rise of digital photography, silver nitrate remains a favorite among vintage photography enthusiasts. Additionally, silver's remarkable antimicrobial and antiviral properties make it invaluable in medical applications, hospital environments, odor-resistant fabrics, and water purification systems.

Drivers of Silver Demand

Silver's wide range of uses—from industrial applications to investment—results in an exceptionally diverse array of demand drivers. According to the 2024 World Silver Survey published by The Silver Institute and Metals Focus, demand for silver in 2023 totaled 33,878 tons. Of that total, industrial fabrication accounted for 54.8% of demand, which is equivalent to 18,552 tons. Net physical investment in the form of bullion bars and coins accounted for 20.3% of demand or 6,892 tons, jewelry demand represented 17% or 5,758 tons, and silverware (including tableware, cutlery, and ornamental silver) represented 4.6% or 1,558 tons of total demand. Electronic and electrical applications were the largest component of industrial fabrication demand (13,841 tons), while silver brazing alloys & solders and photography generated an additional 2,189 tons of demand.

Silver’s heavy industrial demand makes it more sensitive to economic cycles than gold is, and it is typically more volatile than gold due to its relatively small above-ground stockpiles compared to supply from mining.

Demand for Silver Bullion Bars & Coins

Demand for silver bars and coins typically rises in times of turmoil and uncertainty, such as the 2008 Global Financial Crisis, when investors jettison speculative assets in favor of safe haven assets. According to the World Silver Survey, demand for silver bars and coins totaled 1,740 tons in 2007. By 2023, there was 6,892 tons of demand for silver bullion with 3,294 tons worth of demand for silver bars and 3,598 worth of demand for silver coins.

There is a Structural Silver Deficit

The silver market has been in a deficit since 2021 due to demand exceeding supply, which has contributed to higher silver prices and should continue to do so for the foreseeable future. Heavy demand combined with lackluster supply increases led to a deficit of 184.3 million ounces in 2023 and are expected to lead to an even worse deficit of 215.3 million troy ounces in 2024.

The silver deficit has worsened over the past few years:

While silver demand is growing rapidly, the overall supply of silver has been flat for more than a decade:

Global mine production of silver has dwindled over the past decade:

The structural silver deficit is causing the above-ground supply of silver to plummet:

The total London Bullion Market Association (LBMA) silver inventory decreased by 30% from its peak in 2021:

The total COMEX silver inventory (a measure of U.S. silver inventories) fell by 27% since 2021:

The total silver inventory on China’s Shanghai Gold Exchange sunk 73%:

The total silver inventory on China’s other main silver trading venue, the Shanghai Futures Exchange (SHFE), also fell significantly:

Where Silver is Traded

Silver price discovery occurs predominantly in the world’s two largest silver trading venues, which are the London wholesale over-the-counter (OTC) silver market and the COMEX futures exchange in New York. It’s important to mention that both of those silver trading venues trade “paper” silver rather than actual physical silver and the ratio of “paper” silver in existence dwarfs the above-ground supply of physical silver. The sheer dominance of paper silver and paper silver trading venues means that the physical silver market and its users and consumers are forced to be price takers vis-à-vis the paper silver market. The explosion of outstanding paper silver has suppressed the price of silver by absorbing demand that would otherwise flow into the physical silver market.

The LBMA Silver Price

The London Bullion Market Association’s (LBMA) silver price benchmark is one of the primary price and valuation sources used by much of the global silver market. The LBMA strongly limits the entities that can participate in the auctions that they use to determine the benchmark silver price. Out of 500 to 1,000 trading entities that are active in the silver market, only six large LBMA bullion banks and a small handful of LBMA-approved trading firms are allowed to take part in the auctions. The volume of silver changing hands at LBMA silver auctions greatly understates the size of the physical silver market but has a disproportionate influence on the price of silver.

The COMEX Silver Futures Market

The COMEX exchange in New York is home to the world’s most liquid and actively traded silver futures contract, which represents 5,000 troy ounces of silver. Skeptics often criticize the COMEX for its massive open interest figures relative to its small warehouse inventories and even more paltry physical deliveries, which is a good indication that COMEX silver futures trading is dominated by speculative paper trading.

The Gold-to-Silver Ratio

Many precious metals investors and analysts watch the gold-to-silver price ratio to determine whether silver is undervalued or overvalued relative to gold. Silver is roughly 17.5 times more common than gold in earth’s crust, which is a major reason why its price has consistently been lower than gold throughout history. During the Roman empire, the government set the gold-to-silver price ratio at 12:1. During the Middle Ages and the Renaissance in Europe, the gold-to-silver price ratio was typically set at similar levels. In 1792, the ratio was set at 15:1 by the newly formed United States government.

When the gold-to-silver ratio varies significantly from its long-term average, there is a high probability that the ratio will eventually revert to its historical norms. The gold-to-silver price ratio has ranged from approximately 50 to 100 since the 1980s, which is much higher than its historical average. The gold-to-silver ratio is now 84.3, which means that silver is much cheaper than gold based on historical averages — a condition that should prove beneficial for the price of silver in the years and decades ahead.

Physical Silver versus Paper Silver

In recent decades, there has been a significant proliferation of "paper" investment products designed to track the price of silver, including exchange-traded funds (ETFs), futures and options, mining stocks, and silver-backed cryptocurrencies. While these investments have attracted numerous investors, they lack the primary benefits of physical precious metals, namely the complete absence of counterparty and default risk.

While paper silver investment products may be convenient for tracking the price of silver in ordinary times, they are deceptively complex and fraught with hidden risks that are likely to emerge during financial stress, such as the anticipated global financial and monetary reset. Investors in paper silver products are merely shareholders, not owners of actual physical silver bullion. One of the primary appeals of physical gold and silver is their simplicity, providing a counterbalance to the increasing complexity of our global financial system. In the uncertain times ahead, it is far more prudent to invest in silver bullion coins and bars, which can be owned outright without any complex financial entanglements.

When you purchase silver and gold bullion from BullionStar, you can either have that bullion shipped directly to your address or have it stored in our ultra-secure vaults in the United States, Singapore, and New Zealand. One of the benefits of storing your bullion in our vaults is geographic and jurisdictional diversification, which is highly desirable in times of political uncertainty. Jurisdictional diversification is a sophisticated form of spreading your eggs across multiple baskets rather than keeping them in a single basket, so to speak. When you store your silver bullion in our vaults, you can view, analyze, sell, physically withdraw, and audit your bullion online, 24/7. We fully insure all customer bullion holdings at full replacement value.

Conclusion

As demonstrated, silver is a superior form of money, a reliable store of value, and a safe-haven asset, rivaled only by gold. In an era where governments and central banks are excessively printing paper currencies, there is a renewed interest in physical silver and gold as hedges against currency debasement and inflation. Physical precious metals offer the best refuge from the increasing complexity of our global economy and financial system. Beyond its traditional role as money, silver has an ever-expanding array of practical uses. However, the supply of silver from mining and other sources is dwindling at an alarming rate, indicating potential shortages and higher prices in the future. Silver bullion investors are well-positioned to benefit from the growing demand and popularity of this remarkable metal, venerated by humans for over six thousand years.

If you enjoyed this article, please check out our guide to investing in gold as well!