Unlike its big brother, gold, physical silver is coveted for both investment purposes and industrial usage. Right now, silver prices are in a bit of a slump — in other words, it’s the perfect time to load up on this precious metal while it’s down.
Here are some good reasons why silver should be on every investor’s radar.
1: Silver is being used up in China’s solar boom
By far the largest application of industrial silver today is in solar panels — and Chinese demand for solar energy is skyrocketing. In its 13th Five-Year Plan, Beijing aims to triple its solar capacity by 2020 in order to combat air pollution and to comply with the Paris Climate Accord.
Amazingly, China is already investing more in clean-energy developments than the European Union.
Last month, China revealed a newly built 250-acre solar farm shaped like a panda — the first of 100 such solar plants planned for the Asian region in the coming years. Displaying typical Chinese efficiency, the solar farm in Datong was proposed in May 2016 and became operational only 14 months later. Over the next 25 years, it will provide the same power as burning one million tons of coal.
No wonder last year was the strongest so far for solar-related silver demand. Leading analysts believe that this trend will continue a while longer — even though Tesla’s SolarCity is getting ready to replace silver with the much cheaper copper in its PV panels.
Specialist consultancy Metals Focus said it expected 2017 silver demand from the solar sector to ease only slightly compared to last year, remaining the second highest on record.
And the supply is finite. The chart below shows official global silver reserves, that is, the amount of silver that is considered to be recoverable from mines — which is only 571,000 tonnes.
2: The US stock bubble is getting ready to burst
How many screaming superlatives can a market take before it collapses? We will probably find out soon.
It seems that US equities are hitting new record highs every day, but the writing is most certainly on the wall. By mid-July, the Case-Shiller P/E Ratio hovered above 30 (the 100-year median is around 16). That is reminiscent of the height of the dot-com bubble and the weeks leading up to the 1929 stock market crash.
One yardstick of the growing insanity is the money-burning tech companies whose shares keep going up no matter what.
Take Netflix, for example, which casually announced in an April letter to shareholders that it expects a negative free cash flow of $2 billion this year, up from “only” $1.7 billion in 2016.
Last October, the company said it would have to raise another $800 million in debt (adding to the over $2.2 billion it already had), all in the name of adding quality content, aka movies and TV shows, to the site.
It’s no secret in investment circles that Netflix doesn’t really make money, a negligible fact that hasn’t kept the stock from skyrocketing.
In its mid-July Q2 earnings report, the company proudly reported that it had added 5.2 million new subscribers in the last quarter, crushing Wall Street estimates and propelling the stock upward by more than 10%.
Never mind that Q2 free cash flow was minus $608 million, a year-over-year increase in losses of $354 million. Investors gobbled up the “good news” and sent shares soaring to new heights of over $188 in July.
We see a similar picture with social-media giants like Twitter and Snapchat, which are virtual money pits.
Of course, there is no way that this can go on. And as stocks are being caught out in the rain, gold and silver will get their day in the sun, as has historically been the case.
3: European banks are still in big trouble
The ongoing debt crisis in the EU has recently been dwarfed by the global outcry revolving around the much-despised Trump administration and its draconic trade policies. However, while Europe’s woes may be forgotten for the moment, they have been anything but resolved.
In June, the UK Telegraph commented that
“Italy’s long-simmering banking crisis has erupted again. The emergency plan to wind down two Venetian lenders at a cost of up to €17bn is a fiasco of the first order.” This, the article continues, could push Italian debt to 133% of GDP.
Research by Italian investment bank Mediobanca found that 114 of Italy’s 500 banks have “Texas Ratios” of over 100% (non-performing loans divided by tangible book value plus reserves; a TR of over 100% is considered perilous).
24 of the endangered banks reportedly have ratios of over 200%, among them some of Italy’s biggest banks, like Monte dei Paschi di Siena with a TR of 269%, and Veneto Banca with a TR of 239%.
But the problem extends to the entire European Union. According to a Reuters article,
“the total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world.”
Clearly, this is a level that is unsustainable in the long run. And if you don’t believe that Italy’s problems could have a major impact on US investors, remember how the US subprime mortgage crash and subsequent financial crisis affected the entire world.
In today’s interconnected global economy, any severe financial crisis in one part of the world can cause tidal waves in another. And when that happens, gold and silver are the ultimate safe-haven assets.
4: The risk of military conflict continues to escalate
Tensions between the US and North Korea continue to escalate as Kim Jong-Un has now threatened a nuclear strike against the United States.
This direct threat came after CIA Director Mike Pompeo said that the US needs to find a way to separate North Korea from the system:
“The North Korean people I’m sure are lovely people and would love to see [Kim Jong-Un] go.”
In response, the North Korean Foreign Ministry stated,
“Should the US dare to show us even the slightest sign of attempt to remove our supreme leadership, we will strike a merciless blow at the heart of the US with our powerful nuclear hammer, honed and hardened over time.”
By some estimates, Pyongyang could have a nuclear-capable ICBM as early as next year.
And North Korea is not the US government’s only worry. President Trump vehemently opposes the Joint Comprehensive Plan of Action (JCPOA), a treaty signed by the US, Iran, and five other countries in 2015. However, to renege on that agreement and to stop Iran from pursuing nuclear weapons, says retired Army General Paul Eaton,
“would require regime change, which requires full-scale invasion, which is not tenable.”
Iran, Eaton warns, would be a much more dangerous enemy than Saddam Hussein’s Iraq. A large-scale attack on Iran would likely involve the US’s NATO allies as well as Israel… and if Russia were to come to Iran’s aid, we might have World War III on our hands.
It doesn’t have to come to war, though, for precious metals prices to rise. The threats and growing tensions are enough to drive more investors to the safety of gold and silver — yet another reason to get some bullion now.
5: Silver is again becoming real money
Gold and silver are making a return as sound money.
Article 1, Section 10, of the US Constitution demands that
“No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts.” And more and more states are putting precious metals back on the books.
Six US states have put precious metals back onto their radar, and the seventh just followed suit: as of August 9, Arizona acknowledges gold and silver as legal tender. Four other states are on the road to accepting bullion as currency — also, Utah and Texas plan to set up bullion depositories to help private investors keep their gold investments secure. Here’s a map of US states with current or pending legislation to accept precious metals as legal tender.
As a consequence of this legal change, if you live in one of the participating states and your gold and silver appreciates in price, there will be no state capital gains taxes since currency isn’t subject to taxation.