Aug 20., 2022 / Miscellaneous
Should I Buy Gold Or Silver 2022?
Many precious metal investors have a preference for investing in silver over gold. They cite the relative importance of silver in manufacturing, its value as a workable metal, and their belief that a long-term rise in industrial demand will make silver a better investment over time. In contrast, skeptics claim there is not enough demand for silver, or its supply cannot keep up with surging investor interest. Silver is a fascinating metal with unique properties that all investors should know. Silver has two different valuations based on its physical and intrinsic characteristics. It trades higher than its value as an industrial metal and has substantial inherent value. The following six reasons show why the long-term outlook for silver is much brighter than gold.
The Historic Gold/Silver Ratio
Gold is overpriced, and silver is underpriced when viewed in the context of their historical gold/silver ratio. Based on this ratio, it’s estimated that the price of silver should be 2.85 times greater than its current price. It may take years for the metals to reach equilibrium levels, which should always be considered before buying or selling any precious metal.
According to a recent study published in the Quarterly Journal of Economics, silver may be more volatile than previously thought [What Volatility?]. For example, a comparison of silver to gold shows that silver is more volatile than gold by roughly 3.5 times in annualized beta. Silver is subject to more significant price swings during a given period than other metals.
U.S. Silver Miners Have Increased Production
U.S. silver miners have increased production by 14% since 2008, when the index tracking industrial demand for silver was at a low point [Silver Prices Show Signs of Accelerating]. U.S.-based silver miners have increased production by an average of 4% per year since 2010, while gold production has remained stagnant over the same period [American Silver Still Holds Value]. This growth in U.S.-based gold and silver miners over the past six years is significant because it suggests that investors still invest in gold and silver despite the price trends.
Lower Above Ground Stockpiles
At the end of 2013, we reported that gold’s aboveground stockpile became even more concentrated, with the world having just 1 ton of gold apiece, which is set to start declining in the next few years. Silver could be headed in the opposite direction. It is worth noting that despite having four times as much of the metal stockpiled above ground as gold, silver has shown no signs of slowing its out-performance over gold and is vastly undervalued relative to its physical supply. Current silver stockpiles only represent about 10% of our current annual industrial consumption, but this percentage will decline to about 5% by 2020. This means that every year on average, there is a 15% degradation in silver’s physical stockpile value.
Superior Industrial Applications
As of 2013, silver’s global industrial demand was seven times higher than its supply. It is used in over 500 industrial processes, with no substitutes for most of them. As the world’s most robust metal, silver is also the best material to use when extreme durability and strength are required. The best example is the manufacturing of airplane engines, where the silver alloy is used for turbines and jet engine fans, which helps reduce corrosion. Silver has numerous biomedical applications, including high demand for stents, electrodes, bandages, and burn treatment products.
Future EV Market Demand
Tesla Motors has made the future of electric vehicles a reality. The all-electric vehicle manufacturer has sold over 15,000 of its luxury Model S sedans without government subsidies and recently began taking orders for its more affordable sedan, the Model 3. The company also recently announced plans to build a battery manufacturing facility in Nevada that will cost 5 billion dollars to construct. This large-scale investment will allow Tesla to make batteries for 500,000 vehicles per year by the year 2020, when it is expected that all major automakers will have their line of affordable EVs—making the demand for silver dramatically increase in the coming years. Silver is the only material used in the batteries, and floor mats of Tesla’s EVs and, at one point, accounted for 5% of their overall vehicle budget. Tesla alone is not enough to cause silver prices to rally; EVs are expected to become more popular as uptake increases from other manufacturers.
Silver is not an ordinary commodity. It is an ultra-rare metal with exceptional conductive, thermal, reflective, and decorative properties that are unmatched by any other element on the periodic table. Silver’s low price-to-earnings ratio, combined with its production growth, makes it one of the best opportunities for investors in today’s market. Making silver an even more attractive investment is its multiple uses in technology, healthcare, defense, and energy. The metal is used in the industry for IT data storage, microchip manufacturing, optical applications, and solar cells. It has proven to be an effective antimicrobial agent against bacteria, viruses, and fungi, which helps protect hospitals from the spread of deadly infections, including staphylococcus.