The Secret Side of Silver
Silver is usually reserved for second place. But of the four precious metals — gold, silver, platinum, and palladium — silver is actually the least precious.
Silver is the most common of the four precious metals for starters. Some estimates put silver at over 60 times more abundant than gold in the Earth's crust. And silver's chemical and physical properties are simply not as special as gold, platinum, or palladium. Nevertheless, silver plays an extremely important role in our modern lives.
Of course, gold is extremely important to global finance and wealth preservation. Over 90% of total gold demand comes from the jewelry industry or from investors (either from retail consumers, institutional investors, or central banks).
And platinum and palladium serve as vital environmental material mostly used by the auto industry. Over 80% of platinum and palladium demand comes from catalytic converter manufacturing.
Silver, on the other hand, doesn't have such a specific market. Instead, it's critical in a million different applications.
Most people think silver is only a jewelry metal. But according to the World Silver Institute, 56% of silver demand comes from industrial fabrication, which includes everything from electrical, electronics, brazing alloys, solders, photovoltaic, and other industrial applications.
Whether you know it or not, you rely on silver every day. The metal is all around you right now. It's in your cellphones, laptops, televisions, tablets, printers, speakers, scanners, keyboards... The list goes on and on.
And it's a commodity that the world constantly devours in massive amounts. Every day, the world consumes nearly 3 million ounces of silver. Melted down, that would produce a single 7-foot cube weighing over 200,000 pounds!
And unlike gold, silver often becomes irretrievably lost. What I mean is that gold is recycled all the time. Studies suggest that 95%–98% of all gold ever mined is still actively being used in some capacity today. Historically valuable with near-religious appeal, gold is simply too precious to throw away. But silver is different.
It's very common for silver to get tossed out without being recycled. And we're not talking about a case of empty beer cans from the weekend that don't make it into the recycling bin. We're talking about millions of dollars' worth of silver getting tossed out with the dirty cat litter every single day.
According to a report from the United Nations’ Global E-waste Monitor, consumers around the world threw away $57 billion in 2019 in the form of gold, silver, copper, platinum, and other high-value metals found in e-waste.
Among the electronics already mentioned, silver is required in the production of thousands of products, including CDs, calculators, printed circuit boards, hearing aids, electronic switches, catalytic converters, inks, and RFID chips. And once any of these items has served its purpose, it generally gets tossed.
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The fact is it's simply more expensive to recycle the silver from these products than it is to dig more out of the ground.
According to the World Gold Council, about 27% of the world's supply of gold in 2019 came from recycling. Meanwhile, the Silver Institute says only about 16% of total silver supply came from recycling in the same year.
As a result, there is actually more gold above ground than silver. Some estimate gold is actually five–seven times more abundant above ground than silver.
Moving forward, silver consumption is only expected to climb. Along with current industrial fabrication, there are hundreds of new applications for silver that have the potential to significantly increase demand.
But none of this is why silver prices are surging now or why we expect silver prices to continue increasing in the future.
The price of silver has been (and will most likely continue) simply following gold. Investors are seeking a cheaper alternative to gold. And despite everything I just mentioned, the general public is going to think of silver as a cheaper replacement for gold.
The great comedian Lenny Bruce once said, “The truth is what is. And what should be is a fantasy — a terrible, terrible lie that someone gave to the people long ago.”
In the precious metals market right now, the truth is silver prices are edging higher along with gold. And silver's true end-use demand will probably continue to go ignored by the retail masses.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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