Is it worth it to hold silver bullion or equities in a portfolio? Yes, and the reasons an investor should consider exposure to silver can be summed up with three key points.
So says an introduction to the following infographic* by visualcapitalist.com brought to you courtesy of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!). This paragraph must be included in any article re-posting to avoid copyright infringement. See Part 1 HERE, Part 2 HERE and Part 3 HERE.
Exposure to silver can be summed up with these three key points:
Silver has little or no correlation with most asset classes such as bonds, stocks, or real estate. This is because silver prices move based on supply and demand, but also because of other factors such as the global economic environment, futures market speculators, currency markets, the level of inflation or deflation, and central bank policy decisions. Even though silver itself is more volatile than many other asset classes, it does help reduce the overall risk of a portfolio by having less correlation to other asset classes. Over the last eight years, silver’s correlation to treasuries and bonds have been basically zero (-0.07 and 0.08 respectively). It has slightly higher correlation with US equities (0.23) and real estate (0.13).
2. Safe Haven
When the times get tough, silver is your friend. Even in the most challenging environments it holds its value or bucks the negative global trends.
How did silver do in the four years surrounding the Financial Crisis? Over a period where US equities, emerging markets, and REITs were down, silver more than doubled in value from 2007-2011.
3. Fundamentals and Value
The fundamental numbers around silver make it quite clear that silver could provide extreme value as an investment. Here are some key numbers:
- In the earth’s crust, there is 1 gram of silver for every 12.5 tonnes of rock.
- For centuries since ancient times, the gold-to-silver ratio was 15 to 1. That means 1 oz of gold could buy 15 oz of silver.
- In the earth’s crust, there is 19x more silver than gold by mass.
- The “modern” gold-to-silver ratio is closer to 50 to 1.
- Yet, in mid-2015 the ratio is 75 to 1, which means silver could be very undervalued relative to gold.
- The silver price, in terms of USD, is also at its lowest point in five years.
- Silver miners are even cheaper, trading at their lowest valuation in years.
Silver continues to have the same impressive properties, supply and demand fundamentals, and a rich history as money. What has changed is what people are willing to pay for it at a given time and, right now, it seems that silver is being sold for half price.
Related Articles from the munKNEE Vault:
In today’s infographic, which is Part 3 of the series, (see Part 1 HERE which showed silver’s rich history) & Part 2 HERE which illustrated the supply and geological fundamentals) we cover the demand and uses for the world’s most versatile metal. Learn how much silver is used for industrial purposes, investment, jewelry, and what trends could shape the future.
Silver has thousands of industrial uses and is considered a store of wealth by investors. The infographic below illustrates silver’s history as a currency in the past and as an essential component in industry and technology today.
Of the 1040.6 million troy oz of silver produced in 2011, 84% was used in over 10,000 modern industrial applications (16% used as an investment) of which approx. 33% was used in the traditional forms of fabrication such as jewelry, coins, medals, and silverware with the remaining 66% actually being consumed. While the actual amount is unknown, some experts believe as much as 90-95% of all the silver ever mined has been ‘lost’ to landfills. For this reason, there is likely less silver available above ground than gold (98% of all gold is accounted for today). For more interesting information regarding the supply of, and demand for, silver please refer to the infographic below.
Silver has had double digit gains in 7 of the last 10 years. In this infographic, we look at the investment properties of silver as well as its chief differences with gold. Highlights include a study on silver correlation, volatility, performance against the US Dollar and money supply, and portfolio diversification.
While gold remains a smart move, there’s much to be said for silver. Why? Because, unlike gold, silver has an inherent value that goes well beyond scarcity. Without silver the world as we know it would literally stop. The computer screen on which you are reading these words, has silver in it. The TV you watch, has silver in it…and the list goes on and on.
The gold-silver ratio is the relative valuation of the two precious metals, and in consideration of the described trading pattern it can provide an indication of the maturity of a bull or bear cycle. Market tops for gold and silver are typically accompanied by low gold-silver ratios (silver outpacing to the upside), and market bottoms are typically accompanied by tops in the gold-silver ratio (silver outpacing to the downside). So what is the gold-silver ratio saying these days?
Spectacular bull markets in silver are not a fantasy and are not anomalies. In the last 35 years, silver has had a perfect record of strong bull markets after a bear market. A 350% gain is what can be expected once silver finds a bottom. Here’s why.
Given the fact that a) the historical movement of silver is 90 – 98% correlated with gold-silver gold, b) silver is currently greatly undervalued relative to its average long-term historical relationship with gold and c) many analysts predict a parabolic rise in the price of gold over the next 5 years it is realistic to expect that silver will also escalate dramatically in price – but by how much? This article applies the historical silver to gold ratios to come up with a range of prices based on specific price levels for gold being reached.
The continuing upward trend in the gold/silver ratio (continuing weakness in silver relative to gold) is not in conflict with the view that gold commenced a cyclical bull market last December and is working its way through a lengthy basing process. Here are the details.