Why silver is an asset worth investing in if you want a golden retirement: Alan Lazenby

Unlike gold, which is largely recycled, silver is often used up in industrial applications, meaning much of it is lost forever. With increasing reliance on silver for electric vehicles, AI, and even military technology, the metal is becoming scarcer.

And yet, the price of silver remains artificially low due to complex market factors, speculative trading, and its unique status as a byproduct of other mined metals.

It is estimated that there are around 380 contracts per ounce of silver in circulation, which suggests a significant amount of paper silver compared to the actual physical supply. This imbalance can lead to price volatility, as these contracts do not correspond to real, deliverable silver.

In terms of production, only about 20 per cent of silver comes from primary silver mines; the rest is a byproduct of other metal mining, notably zinc. This dependency on byproduct mining means that silver production is somewhat at the mercy of the demand and pricing of other metals, potentially leading to discrepancies between supply and the increasing demand for silver.

Silver’s applications in technology are vast and growing. From AI systems to everyday electronics like laptops and mobile phones, silver’s superior electrical conductivity makes it indispensable. Newer technologies, particularly in the realm of electric vehicle batteries and renewable energy solutions, are increasing silver’s consumption. This high consumption rate without equivalent replenishment could push silver towards a real shortage, especially as technological advancements continue to demand more of this metal.

Moreover, there’s an underreported aspect of silver use in military applications, notably in smart missiles. While exact numbers are not publicly disclosed, it is believed that military demand significantly contributes to silver consumption, adding another layer to the demand that could exacerbate any existing supply issues.

Ownership of physical silver, like bullion coins, is relatively low compared to the global population. If each person on Earth wanted to own just one silver coin, the division would be infeasible given current production levels. If we consider the total above-ground stocks of silver, even at current levels, it will translate to a very small fraction of an ounce per person, highlighting the potential for a dramatic price increase if demand for physical silver were to spike.

The potential for true price discovery in silver is a topic of much debate. Historically, the gold-to-silver ratio has hovered around 15:1, reflecting the natural occurrence of these metals in the Earth’s crust and their relative values. However currently, the gold to silver ratio is 89:1 showing how cheap it’s been historically.

So what does this mean for consumers and investors? The silver market is poised at a pivotal point where industrial use, potential shortages, hidden military demand, and speculative trading could all converge to redefine its price and availability. The interplay between these factors could lead to a revaluation of silver’s value, possibly aligning closer to its historical ratio with gold, but this would depend on market corrections, regulatory changes, and shifts in global technology consumption patterns.

And speaking of silver, my friend’s father has a large collection of silver spoons, which he’s always bragged about. He’s now wondering if this ‘spoon treasury’ might actually be his retirement plan after all. With silver prices potentially skyrocketing, he might just be able to trade in his spoons for a golden retirement yet.

Alan Lazenby is Managing Director of Lazenby’s Financial Services