Silver is a ‘precious metal’ with a long history of use as ‘money’. Hence, them who realize the craziness of fiat currencies advocate for silver being “something everyone should own”. I’ve never found that argument convincing. But, whatever. It’s a harmless hedge, and it might prove its merits one of these days.
But here’s where things do get serious. Of late, siler has become a ‘strategic industrial metal’ due to its conductivity, its resistance to corrosion, and its ability to handle high voltages better than copper or other attempted substitutes. The solar panel industry needs it. The EV makers need it if they are to move to 48-volt batteries. The chip makers need it. The MIC needs it to build its toys. That industrial demand is rapidly drawing down supply, which has become constrained due to two of the world’s major producers banning exports.
Yeah, there’s more to the story than that. But its essence is a supply and demand story. If demand is strong and supply is weak, prices will go higher. In fact, the cure for high prices is high prices, because it discourages demand and prompts new supply. But the mining fundamentals of silver suggest that increased supplies are farther out in the future than the increasing demand needs. (Again, there’s more to the story. But hold that thought in mind.)
As with all futures markets, there are two groups of participants, the ‘commercials’ and the ‘speculators’. If you are an industrial-scale baker and need wheat, you can assure price and supply for yourself by buying futures contracts and taking delivery. Only a small percentage of buyers of futures contracts take delivery. The rest settle for cash. One might think those speculators are irrelevant. But their presence can assure there is ‘price discovery’ and ‘an orderly market’. As with the banking racket, the futures markets are fractional reserve markets. There are many more claims on the underlying than could ever be delivered.
The exchanges holding the physical can always print more paper. But they can’t print the physical. Hence, when them who are short are asked to make good on their bet and they can’t find supply, because there isn’t any, they get squeezed. That’s what’s going on, and that’s why there price discrepancies between the price of silver in London, where the shorts are having to settle up, and on the Shanghai exchange where the mostly Chinese commercials are taking delivery at whatever price they have to pay, and they will continue removing supply from the market, because their factories would shut down otherwise.
Thus, there are two sides to this story, the speculative one and the sound fundamentals one. The “average” retail investor doesn’t have the time, means, or skills to make speculative bets, though they attempt to do so all of the time with the stocks they buy. But they do know how to buy bell peppers and broccoli at the grocery store. Silver has become a similar commodity. Modern industry needs more silver than there is --or will be any time soon-- sufficient supply. The logical and sound bet is that its price will rise, as will prices for its miners.
Standard disclaimers: I’ve been acting on this investment thesis for two years now and own many of the ETFs that track the metals or their miners, as well as lots of the relevant stocks, small positions all, because I never make big bets on anything. The gig has been profitable, prompting the thought, “I shoulda bought more”. But acting on that thought is the sure road to ruin, because not every “good idea” works out as hoped.
“Is it too late to get into the silver trade?”
I just don’t know. I suspect not, because this isn’t just a story about silver but quickly slips over into the currency markets, the banking industry, the broad economy and begins to fill in some of the backstory behind the US’s intention to take over Venezuela’s resources which are both hydrocarbons and metals. But that’s not a rabbit hole I’m trying to go down. I’d rather stick with the simple fact that the world’s largest industrial manufacturer needs more silver than there is current supply, and it is willing to pay whatever price it has to for at least the next several years.
