Silver is a peculiar commodity. On one side, it is extremely widely used metal that can be found in anything from LED chips to Solar panels. On the other, it is a commodity with a historically volatile price, rapidly depleting reserves, and most likely a very interesting future. So, what is so special about this familiar metal?
Looking back at the last 20 years, it is clear that silver remains an attractive investment during uncertain times. Silver price stayed at modest levels since the dawn of the new millennium. Its price started going into the stratosphere as soon as the first signs of the financial crisis started to appear. Once the markets started normalizing and stocks return into growth mode, the all-time high price of silver could no longer be supported. By mid 2013, its price dropped to 20USD/oz and kept bouncing within 16-18USD/oz range for the next few years. Fast forward to Q1 2020 and it becomes clear that COVID is no longer a problem in only one Chinese city. The investors flock back to commodities, as countries around the world work around the clock creating strategies to suppress the spread of the virus. July 2020 again saw silver prices not seen since 2013.
Those who already invested in silver and those who still consider whether it would be a good idea, the questions remain the same: how long will the rally continue and how much longer the price will be supported after that? For short term strategies, silver is a risky commodity. It is volatile enough to wipe out any meaningful gains very quickly, unless specifically used as a day trading foundation
The story becomes much more interesting if we look at long/very long investment period. It is very likely that once the pandemic goes away, there will be some price corrections. History likes to repeat itself, so we may see similar behavior to that 10 years ago, where price will peak, then drop rapidly and eventually settle at a higher range compared to pre-crisis period.
But what about very long-term perspective? Global mine production of silver has been very similar for nearly a decade and by some estimates it has reached its highest level of 27 000 metric tons in 2019, which is roughly 10 times higher than annual extraction of gold. It is estimated that humans will deplete most currently known mines by 2035-2040. If no alternative sources can be found on time, our society will have to adjust to the new reality very quickly. It is also very unlikely that the manufacturing industry can find necessary alternatives to silver in such a short period of time, which would add upward pressure to the price even more.
Currently, silver’s properties allow its wide use around the world. In a similar fashion in the investment world, it also offers a variety of opportunities for both short- and long-term investors.
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