Can you tell us about your background as a silver analyst and investor, and what brought you to this focus?
I’ve been writing resource-based newsletters for about 20 years now. After COVID hit, I had been out of the newsletter business for a while and anxious to get back into it, and decided to do that. I reached out to a former business partner, Gwen Preston, who wrote The Maven Letter for a long time, and she offered for us to join forces and to launch a new newsletter. We saw that there was an unmet need to talk about silver. Soon after that, we launched the letter. That was four years ago already and we’re still going strong.
Let’s look at how geopolitics and how global uncertainty plays a role in the silver markets.
Silver is very much like gold, though it’s considered its poorer cousin, and there are different things that play. Silver is really a dual purpose metal, unlike any other metal that I can think of. Gold is mostly a savings metal. It’s a chaos hedge and an inflation hedge, and all of the other metals are mostly industrial, but silver really is half-half. If you look at demand, about half of silver demand is industrial. Most of that silver gets consumed and we don’t ever see it again.
The other half is investment. We have actual investment in physical silver, like coins and bars, but we also have jewellery and silverware, which I consider all part of silver investment demand. That really makes it different.
On the geopolitical and economic side, silver is important because the demand has grown so much, especially industrially. Maybe 10 years ago, half of silver demand was industrial. Now, we’re at the point where almost 60% of silver demand is industrial, so industrial is becoming clearly more and more important.
Historically, silver has been money since before gold, and its value is a lot lower than gold for the same weight, though it’s responsible for more transactions globally in history than gold. A lot of places, especially in the East, have a long history with silver and continue to buy it very voraciously. They put their savings into it, and many think that if ever we get to a point where we’re in some kind of a financial crisis and certain things break down, that silver could serve as daily currency once again.
You’ve started to talk about how silver has this dual role and dual demand side. Can we talk a bit more about those supply-demand dynamics?
If we look at how the demand breaks down, the simple numbers are that there’s about 1Boz of supply of silver every year. That works out to about 850M from mining and about 150M from recycling. Demand is 1.2Boz, so we’re short about 200Moz of silver, about 20% every year. This has been the case for the last four years now where we’ve been short anywhere from 100, 150, even up to 200Moz, depending on the year. Demand is strong, supply is weak. S&P global research thinks that, even over the next few years, we’re not going to see any growth in mine supply from primary silver miners. It peaked in 2016, and we’ve seen mine supply from silver drop for the last decade, as we’ve seen demand rise.
The biggest driver in silver demand, clearly, over the last 10 years, has been solar. Solar now accounts for 20% of all industrial demand. It’s the single biggest demand factor on the industrial side. Looking back at silver supply, mined silver breaks down as only 25% coming from primary silver mines, where the main output is silver. 75% of silver from mining comes from mining other metals, so it’s a byproduct of things like copper, gold, lead, and zinc. The interesting part about that is that miners that produce these other metals with silver as a by-product don’t really care that much about the silver prices. It’s secondary to their revenues. Even if the silver price goes up, they don’t really try to produce more because it doesn’t represent that much of their revenues, and so that can exacerbate silver shortages. The interplay that you have there is interesting.
Looking at silver as a precious metal now, it’s often correlated with gold. Can you talk about that relationship?
That relationship is out of whack now, and it has been for a while. There’s something called the gold-silver ratio, which tells you, at any given point in time, based on the silver and gold prices, how many ounces of silver it takes to buy one gold ounce. If you look back over, 30, 40 years, the average has been about 55 or 60oz of silver to buy one ounce of gold. Right now, we’re at about 90 or 92oz of silver to buy one ounce of gold. On that basis alone, silver is very cheap. People keep asking, “Why is that?” There are all kinds of factors that go into it. I think that, right now, gold has done very well, there’s been a lot of physical gold buying, mostly by central banks, and gold is the king of precious metals. There’s no question about that.
I think what will happen and what we’ve seen, is that silver always outperforms gold in bull markets, and it does that later in the cycle. I think that what drives that is this fear of missing out. People who are not familiar with the precious metals industry, at some point, they start to see the headlines in mainstream media about gold at US$2,500, US$3,000, and beyond, and then they really start to pay attention to gold. What happens is they look at gold and they say, “Wow. US$3,000/oz, what other options do I have?” They see silver, maybe at that point is US$40 or US$45/oz, and they say, “I can get a lot more silver for my money than I can gold,” and they start buying silver. It’s a much smaller market, so it takes much less buying to make it move. That’s, I think, what generates the volatility both up and down.
What is the general sentiment in terms of investing into this metal? What forms of investment, who is investing, and where do you see that going?
We’ll start with physical silver. This market changed in 2006 in particular when the first silver-backed ETF came out. That still runs today and is the single biggest silver ETF globally, with billions of dollars of silver represented by that. It changed the dynamics. People were able to get direct exposure to silver and the silver price without having to actually go out and buy any physical silver, so that’s drawn a lot of the money. It still ultimately needs to go into physical silver, because they buy silver to back those units that they issue. But then beyond that, you’ve got silver mining ETFs, people can go out and buy one unit, like a stock, and they’re essentially instantly diversified in the silver mining industry.
This covers a bunch of silver miners, anything from these large-cap producers all the way down to some junior explorers. You can also invest through the individual mining companies. The largest market caps are these multibillion, tens of billions of dollars names like Wheaton Precious Metals. You’ve got some other royalty companies, but that’s really the one that has the biggest silver exposure. From there, you’ve got the large producers, like Pan American Silver, First Majestic Silver, Coeur Mining, Hecla. These are the big names in silver production. You have smaller and medium-sized producers, then you have developing silver companies. They have a project, they’re working to bring that into production to build it out. After that, you’ve got the explorers, some have discovered something, some are still looking to discover something, and that really covers the whole range.
