Ask most holders of assets in precious metals about hedges against recession and inflation, and you’ll likely hear about gold. When the dollar drops, people flock to gold, gold stocks, and gold ETFs. Having money in a precious metal like gold helps people protect their money when they’re not sure what else to do.
And given gold’s status as a store of market value for thousands of years, it’s hard to foresee a day when gold does not serve this purpose. Gold has been up in recent weeks, hitting a 6-year high. What about the other precious metal that has a lower price point, making it a better “entry” point for new buyers?
Why Silver Is in a Unique Pricing Position
The current gold/silver ratio stands at almost 90, while the average during the 20th century was less than 50.
So, why is silver so low? Silver has inherent market value with eco-friendly technology. It appears in solar panels and electric cars, and it helps power the cell phones and laptops that make our daily lives possible. Not only does silver work as a form of money in the same way that gold does, but if our demand for electronics continues on its current course, silver will also continue to be consumed at levels that may eventually push its supply down, with no change in demand except upwards.
This would put immense pressure on the price of silver to explode.
In fact, according to JM Bullion, “physical silver supply deficits have become the norm over the past 10 years worldwide.”
This trend isn’t driven by technology demand alone. JP Morgan stockpiles silver in the COMEX warehouse. The importance of buying up silver can be seen in powerful banks the world over.
Using Silver to Protect Against a Recession
Imagine going back in time to a point when gold was much more affordable. Sure, gold may be headed to higher prices still – but a precious metal with a low entry point like silver can be far more appealing to starting buyers.
The U.S. geological survey, estimating the prevalence of silver mines throughout the world, has found that we’re mining silver at rates that could put supply in serious jeopardy. In fact, the dwindling production could even grind to a halt by the year 2020.
New silver mines can always change this, but silver mines require a lot of time to get started – often as much as three or four years. That means that global demand for silver will remain high in electronics, and many of the banks will have already bought up lots of the silver supply. This would suggest that the price of silver, logically, has little recourse but to increase in price.