Silver Rush

While in the advanced phase of digitalization, in which everything becomes electronic and as the part of the population is still being accustomed to its features, there are those who approach all phenomena and processes that seem less close to them with a dose of distrust or simply lack of information to relieve worries whether something they could touch and what they saw on the screen actually had the same purpose.

While some say they can’t imagine reading a book that hasn’t been printed (and therefore remain deprived of so many editions whose authors have decided not to cut down any tree to get their words down on paper) others still understand the notion of electronic money that can be used to pay for more than a decade with “real” banknotes.

To check and determine whether, for example, cryptocurrencies have the features of money, it is not necessary to make a test that would have the characteristics of what is in the spirit of the times, because the way Aristotle spoke about money may be the best way to understand how and why it became the means of exchange. As early as the fourth century BC, five basic characteristics of what should define the means of exchange were established.

According to Aristotle, the ideal currency had five basic features – stability, divisibility, coherence, practicality and intrinsic value. If we were to compile a matrix with these characteristics and assign them to everything that is considered a more significant asset, we would see that money is not really what fits the description of its essential characteristics.

Money, either physical or digital, has only slightly more of these properties than, for example, land ownership. On the other hand, precious metals are those that meet all the properties listed within this definition, because only real goods contribute to the growth of the usefulness of individuals, since money is not able to meet the basic needs of man, but only serve to pay for what has these characteristics.

If we try to apply these five features to everything that comes to mind as we enumerate what can be considered wealth – real estate, oil, artwork, securities and precious metals, we will come to the conclusion that only the latter corresponds more to the properties that were analyzed by Aristotle and the current moment in monetary policy and the obsessive reprinting of money may be the best way to illustrate why this is so.

Precious metals fit more precisely into the definition of money than – money itself. As we think of bank gold reserves and gold bars as custodians of values, silver coexists almost unnoticed in our definitions and matrices – a precious metal whose time is yet to come.

Unlike gold, which is more expensive and more often mentioned in the story of wealth, silver, although on the market about eight times cheaper, is important not only when it comes to stock exchanges and investment, but also when it comes to industrial production, especially the technologically advanced world is looking for. The unique features of silver, which make it an indispensable raw material in production, rank it among the most important elements of sophisticated technological devices, from telephones and computers, through cars to photovoltaic cells of solar panels.

The use of this precious metal in production could be doubled in the short term as soon as the introduction of the 5G network becomes more intensive. It will find special application in electric vehicles and their battery charging mechanisms, as well as in water purification systems.

Despite that, the amount of silver extracted from the mine has been gradually decreasing for several consecutive years, regardless the pandemic, during which there was a general slowdown in production, because this trend appeared earlier. All this leads to a weakening of global silver stocks, but also new challenges, not only the industry, but also in the supply chain. This is the reason why silver production must rely on other mines, because less than one third of this precious metal is extracted from silver mines, and the rest from mines that extract other metals, such as gold, copper, lead or zinc.

This means that even in the event of a new rise in the price of silver, mines like these, from which extraction of silver is not the primary activity, will not be forced to increase silver production, as it is not their main source of income, but fits them perfectly reimburse the cost of production of their primary metals.

Another specificity of this metal is that it is recycled to a very small extent – approximately one sixth of silver comes from recycling. In addition to the pandemic, stocks over the past two years have barely been sufficient to meet production’s growing market demands for all those devices that require the use of silver. In order to store silver, expressed in the amount of gold, about 70 times more space is needed for the same stock market value.

Orders of silver as a raw material this year only for the production of several leading technology companies have increased to such an extent that, if this trend continues, there could be a time when we will start hearing news about the dizzying jump in prices of this precious metal as a commodity. Growing demand with declining, limited supply creates the potential for a major market turnaround when it comes to investor interest.

For some, trading silver this year will be perhaps the most interesting move so far, although this precious metal is usually less attractive than anything else that can be traded, mostly because of sudden price changes, much larger than those that gold has. For others, at least the news that the price of silver is growing faster and higher than before should not come as a surprise.

The article is the part of the series of research into post-pandemic economic recovery 2021

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