2. The advantages of silver


It is obvious now that investment into precious metals is sensible. But why silver and not gold?

It is true that silver and gold are precious metals and therefore they tend to behave similarly. Silver however, has several advantages, thanks to which it has a great potential for the future.

We often like to say that the biggest enemy of gold is gold itself. Mined gold does not have many uses. Its main use is in the jewellery industry and in the area of investment. But from there, gold can be very quickly transferred back onto the market as soon as its price rises.

With silver the situation is different. The great majority of annually mined silver is used in industry, primarily in the electronic industry. A large amount of silver is forever lost and therefore cannot be brought back onto the market.
A huge amount of gold is saved in the safes of central banks. We would search in vain for silver in the state reserves. That is caused by long term shortage of silver from the 80s of the last century, when the deficit of silver, caused by insufficient mining was systematically covered from state reserves and from investor socks. These stocks have been exhausted.

What is the exact use of silver?

That, which makes silver exceptional, are its physical qualities. Silver is the highest electrical and heat conductor of all elements. Thanks to that it has a very wide ranging use. People do not generally realise how many things around us contain silver. Computer, television, mobile, car, fridge… almost all electrical products cannot exist without a greater or lesser amount of silver. Silver is also used in medicine, chemistry (e.g. water processing), in jewelery production etc. A surprise for many is the amount of silver used in the weapons industry, for example in rockets, in missiles, in torpedoes and in submarines. A huge potential for use of silver is in the future technologies: in photovoltaic cells (where it is already much used), in nano technologies (because in the electro technologies of the new generation it is necessary to reduce the overheating of conductors, as a result of electrical activity) and also in the new silver-zinc batteries, which look to replace today’s mass produced lithium-ionic batteries. These new „silver“ batteries last twice as long. There is no danger of explosion, they are not toxic. In the very near future there will be new laptops with these accumulators, probably by Apple and Lenovo.
A new branch for the use of silver is the textile industry. An unbelievable 1200 tons of silver is used annually in the production of new polyester clothes with microscopic silver threads! Silver behaves as a disinfectant, that is, it has antibacterial properties. The reason for the smell when sweating is the bacteria reproducing on the surface of the skin. The elimination of these bacteria (by the presence of silver) also eliminates the smell and there is no need to use deodorant. The last few years have also seen the growth in volume of investment into silver – far-sighted investors have realized the perspective of the use of silver and so are quietly buying whilst the price is good.

What are the possibilities of acquiring silver?

silver mineOf course the main source of silver is mining. Whilst reading the previous paragraph, you may have thought that the decrease in industrial production due to the recession would have caused a decrease in the demand for silver. That could have a negative effect on the price of silver? Yes that is true. However, unlike gold 2/3 of the mined silver is a secondary product during the mining of basic metals (zinc, lead, nickel and copper). Due to the drastic decrease in demand of basic metals, a large number of mines have been closed. A decrease in the mining of basic metals therefore logically also means a decrease in the mining of silver. The decrease in the mining of silver has been such, that it more than equalled the decrease in demand for silver in industry.
At the same time even classical silver mines were closed. Mining companies often depend on loans for production. With the drying up of the liquidity on the international bank market, many mining companies were unable to get a loan and had to stop mining. The only other source of silver is recycling. A problem of recycling is that, although it is used almost everywhere, it is in such small amounts that recycling is technologically very complicated. The cost effectiveness of recycling of silver is therefore very complicated.

The situation could be improved by the sale from state reserves and purchase from investors. As we have already seen however, this before important source almost does not exist today. The stocks in state reserves have already been exhausted.

It can be expected therefore, that effects of the economic crisis will continue, but will not only influence demand, but also supply. It is also important to realise that silver is not used in heavy industry, which has been affected the most by the crisis. Silver is used more in light industry and in new high technological areas (mentioned above), which resist the crisis much better, and from a long-term point of view we can expect a considerable growth.

At the beginning of this article we mentioned that silver is used almost everywhere, although in very small quantities. Effect of the price of silver on the overall price of the product is therefore negligible. Even if silver became many times more expensive, manufacturers will not attempt to find a substitute, as in the overall price of the product, silver forms only a small part. On the contrary, manufacturers will try to get adequate stocks even for a high price to ensure an undisturbed production. The fact is that in many products silver cannot be replaced. Yes in a typical product there is very little of it, but without it, the product simply cannot be made.
If a shortage of physical silver occurs, it is not possible to open new mines with the wave of a magic wand. It takes 10 or more years to set up a mine. In today’s world there does not exist a site where silver occurs in a sufficient concentration. Economically rentable sites are very few.

If we summarize the supply and demand for silver, we arrive at the conclusion that silver is diminishing a lot faster than it is mined or recycled. In the world, this phenomenon is called the "Silver deficit". Wise and far sighted investors know about this deficit, proved by the growing interest in investment silver. We will spend more time on the silver deficit in the investor’s section.