Silver has become the latest beneficiary of the Reddit-driven boom. Silver prices have surged to US$29.7 after a Reddit discussion board projected higher prices for the precious metal.
Over the weekend, Bloomberg reported overwhelming demand for silver bars and coins. Apmex, the biggest clearing house for precious metals, was struggling to process orders.
But unlike Reddit’s fuelling of heavily shorted stocks like GameStop, the case for Silver has fundamental merit. Silver provides the same hedge that gold provides, but with added real-world applications. We are bullish.
Gold returns are negatively correlated to the stock market. People generally rush for gold during times of uncertainty – recently Covid-19 has been kind to gold. The fear of a potential debasement of the dollar with the Fed's monetary expansion has helped push gold up 18% in the past year.
However, investors looking for a hedge should look beyond gold and consider silver.
Although silver is at its highest price since 2014, it is still up only 12% YTD. This suggests that the case for silver is strong.
Silver has more applications than gold. Gold principally acts as an ornament and stores wealth. In contrast, silver has industrial and medical applications: it is used in electronics and solar appliances; it is extremely conductible, which means it is ideal for the booming wearable technology trend that includes Apple watches and activity trackers such as Fitbit. In terms of medical applications, especially in the world of Covid-19, silver nanoparticles are used in bandages and face masks – they are excellent for eliminating bacteria.
The demand/supply for silver is much tighter than gold. Almost the entirety of the gold that has been mined is still found in museums, vaults or in jewellery. This amounts to 6 billion tonnes. In contrast, c49% of the 54 billion tonnes of silver that has been mined has either been used or destroyed. Only about 2.3 billion tonnes are investible, which makes silver much more scarce.
Investors in emerging markets equities can reap the rewards of a silver boom. One way is to buy an ETF that provides exposure to the spot price. Another is to invest in EM companies that mine silver. During the last silver boom in 2008-11, silver prices rose nearly five times, with some Chinese silver miners rising tenfold during this period.
In the table below, we list 15 silver miners in emerging markets, mainly in China and South America.