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Silver: The “Gold Medal” Winner Among Commodities
The CRB Commodity Index declined 3.44% in the first quarter. Oil fell 5.8%, natural gas fell 13.4%. But gold rose 8.6% in the first quarter of 2017 and silver was the top-performing commodity of all the 21 leading commodities tracked by FactSet. Silver rose 14.2% in the first quarter. The same thing happened in the last full year, 2016, when gold rose 9.1% and silver gained almost twice that amount, 17.5%.
What’s happening here? Is silver a much better investment than gold over long periods of times?
The answer is no. Long-term, gold performs better than silver, but silver tends to go up faster than gold when both are rising, and silver tends to go down faster than gold when gold is falling. In that sense, you can call silver “gold on steroids,” a leveraged way to buy gold, but without any cash leverage up front.
Over the longer-term, gold is up more than silver. From their fixed prices of 50 years ago, gold is up from $35 per ounce to about $1,250, up over 35-fold. Silver is up from $1.29 to $18.25, just 14-fold.
Since January 1, 2000, gold is up 330% vs. just 242% for silver. Since the start of 2008, before the big financial crisis, gold is up 49% vs. just 24% for silver, so gold is clearly the better choice, long-term, but during this current bull market run – since late 2015 and the first Fed rate increase – silver is clearly the winner, up 34.2% since the start of 2016 vs. +18.5% for gold. As long as gold continues to increase, it’s likely that silver will gain more than gold, but then you must be careful of silver when gold’s price falls.
Each quarter, the Wall Street Journal lists 119 investment categories, and last quarter silver came in at #2:
Market’s First Quarter 2017 Winners & Losers
Commodities (gray), Stock indexes (blue), Currencies (red), Bonds (yellow)
Silver Has More Industrial Applications than Gold
Another advantage of silver is that it has multiple industrial applications, unlike gold. With the global economy recovering faster than most pundits expected, there is more demand for industrial metals like silver and copper, hence their strong rise in early 2017. Silver is used in wiring for the billions of cell phones multiplying like mushrooms around the world. Silver is also used in the proliferation of solar cells, which are multiplying as fast as cell phones due to the planet’s move toward alternative energy.
Despite this demand, silver production remains constrained, since it is mainly a byproduct of mining for other metals. Global production of silver rose by only 2% in 2015 to 886.7 million ounces. Since silver averaged only $15.68 per ounce that year, the value of all newly-mined silver was just $13.9 billion.
Industrial demand ate up 588.7 million ounces in 2015, so there is a shrinking supply available to silver investors each year. That’s one reason silver has climbed to the top of the commodity hit parade recently.
Here is a rundown of some of silver’s major applications in industry:
Electronics. The electronics industry accounts for about 42% of industrial demand. Silver is the best electrical and thermal conductor, so it is used in many applications, such as conductors, switches, contacts and fuses. Silver is used in multi-layer ceramic capacitors, membrane switches and conductive adhesives.
Solar Panels. Silver used in solar panels (photovoltaic cells), its fastest-growing industrial application. Photovoltaic demand rose 23% in 2015, the latest year with full statistics available. Chinese demand is soaring. Various industry associations have predicted that the installation of photovoltaic cells will triple from 2015 to 2020 as the call to reduce climate change due to burning fossil fuels gains wide adherence.
Automobiles. The electrical systems of modern vehicles are far more sophisticated than in cars made decades ago. Over 36 million ounces of silver are installed each year in automobiles. Every electrical connection of a new vehicle is coated with silver contacts. Silver is essential to starting the engine, using power windows, power seats or opening a power trunk. Each action goes through a silver-coated switch.
Brazing and Soldering. Moving from the car to the modern appliances and industrial machinery, silver is used when combining various metal parts in everything from refrigerators and air conditioners to large electric power transformers. Adding silver during the soldering or brazing stages helps to create a smooth, more corrosion-resistant and leak-proof connection to almost any metallic-based appliance or machine.
Photography used to be the mainstay of silver demand, but that is no longer so, due to the billions of cell phones as cameras, and digital cameras. Still, photography used up 46.7 million ounces of silver in 2015, due primarily to medical X-ray machines and sophisticated cameras used in the motion picture industry.
Turning to the decorative arts…
Jewelry accounted for 292.3 million ounces of silver demand in 2015. Silver is “the poor man’s gold.” Like gold, it is resilient, lustrous, can be easily sculpted and doesn’t erode over time, given minimal care.
Silverware still exists, despite the move to mass-produced plastics and alloys. In 2015, silver molded into silverware rose 3.6% from 60.7 million ounces to 62.9 million ounces. Sterling silver has been the choice of the upper classes since the Middle Ages. It’s also a good investment over time – a secret savings stash – since it resists tarnish and has an inherent melt value when its days of practical use inevitably end.
Coins and Bars make up the primary demand vehicle for investors. Overall silver coin fabrication rose 25% in 2015, reaching the highest level on record, 134 million ounces. Rare silver coins continue to rise in price, far beyond their silver melt value. Last week, an 1804 “flowing hair” U.S. silver dollar sold for a record $3.3 million at auction, but most investors choose the modern U.S. American Eagle silver dollars.
Why not contact Navellier today to see our attractive prices on accumulating these valuable silver coins.
But don’t forget to maintain a much larger dollar position in gold, the superior metal choice over time.