I’m a silver bug; I currently own more silver than I ever have, and I love it.
I’m a silver bull; I expect silver prices to reach new all-time-highs before the current gold and silver bull cycle ends.
I stand by my assertion that silver may hit triple digits. I’m not counting on that, of course. I don’t need it to go anywhere near that high to make money on my silver stocks. But I do think it’s possible.
I remind readers of these things because I also strive to be a realist about my investments, and…
I see evidence that silver’s dual nature as a monetary and industrial metal is changing.
My fellow silver enthusiasts may hate me for saying so—confirming my new “Darth Silver” mantle—but I’m not here to be loved. I’m here to offer you the best reasoning and guidance my mind can offer. If you only want analysis from sources that tell you what you want to hear, my service is likely not for you.
It’s better to prepare for changes than to ignore unwelcome ones and be blindsided.
What changes?
I’ll be blunt…
Even if global finance adopts a new gold standard in the future, silver may never go back into circulation as money.
Bear in mind that people already find it inconvenient to carry thin bits of paper on them as money. Just imagine how they would react if they had to carry heavy, jingly coin purses—positively medieval!
I’m not saying that people will give up on owning bullion.
I know I’d rather have a stash of my own than trust all my savings to some third party. But as far as going to the store and paying for a carton of milk… gold and silver bug that I am, I’d rather not have to carry physical coinage with me.
Happily, distributed ledger technology (not just blockchain) solves this problem.
The nonsense we hear from some crypto-cheerleaders about metals being too bulky to use for money in modern times is just that: nonsense. It’s also hypocritical, given how slow Bitcoin itself has become. This has prompted the adoption of secondary crypto “wrappers” to speed Bitcoin transactions. Secure digital tokens can do the same for gold and silver. Hence the proliferation of new gold- and silver-backed cryptos.
Gold’s previous limits on secure portability and divisibility are now a beautifully solved problem.
This makes a renewed gold standard likely to be digital—based on verifiable, audited gold stored in vaults.
Now, it may seem premature to talk about a new gold standard, but there are reasons to think ahead.
If the international experiment with fiat currencies over the last century comes to the logical conclusion hard-money advocates like me expect, using paper for money will go the way of the dodo. Asking people to use “bank accounts” that don’t even bother with the paper will be like asking them to believe in Santa Clause.
Stipulated: the world will go back to using real things with actual value as money.
What things?
The market will decide. It may be more than one thing, and I’m fine with that. I’m confident that gold will be the alternative of choice. I expect to see it become the world’s true reserve currency again, as it was until 1971.
But if so, why not silver as well?
Well, remember that silver was used historically as a convenience for smaller transactions, to “make change” for gold. That’s no longer necessary with digital transactions.
For practical purposes, gold is now almost infinitely divisible, making the smallest payments in gold possible—with no need for silver (or copper) to make change.
It is now also practical to transfer ownership of large amounts of gold instantly—without having to hire an army to guard or transport it.
As for savings, silver is bulkier than gold and it tarnishes. That makes it less convenient and more expensive to store.
If one simply likes silver and wants to own it—as I do—that’s fine.
Or if one uses silver for jewelry, making solar panels, or whatever, of course one needs to secure supplies of the physical metal.
But for monetary purposes, if silver is no longer needed for smaller transactions, gold is all that’s needed.
Consider the alternative…
What would happen if the world adopted a new bimetallic silver and gold standard going forward?
That worked before because the “prices” of gold and silver were set in relationship to each other by the state. Today, the number of ounces of silver we can buy with an ounce of gold is left to market forces (manipulated or not).
If silver isn’t pegged to gold by force, merchants would have to show different prices in terms of silver and gold.
These prices would have to change constantly as the metals fluctuated against each other. Most inconvenient.
But how can silver be pegged to gold without something like government force to make it so? And if it were to be set by a central bank, what distortions would that introduce into markets as supply and demand for the metals differ over time?
Rather than deal with all these complications, I’d expect merchants to simply price their goods and services in the most convenient, universally accepted value—which I’d expect to be gold.
This may seem like a bunch of fanciful imagination about the unknowable future. But remember that today, Basel 3 regulations treat gold as a Tier 1 financial asset. Just gold, not silver.
Remember also that central banks around the world hoard gold—but not silver.
I understand that silver is still the word for “money” in many languages, but…
It would simply be much faster and less of a change for global finance to adopt a new gold standard that’s based purely on gold—not a bimetallic standard including silver.
If this happens, silver’s long-standing as a monetary metal would come to an end.
Silver would become an industrial metal only, albeit a very precious and useful one, like platinum and palladium.
That’s worth stressing:
I am NOT saying that silver will become worthless.
I’m saying that silver’s value would be derived from its industrial supply and demand fundamentals. The price of silver would track copper more closely than gold.
There’s evidence to suggest that this is already happening.
Remember that in every gold and silver bull market since Nixon took the US fully off the gold standard, silver has lagged at first, and then outperformed gold on a percentage-gained basis. This did not happen in 2020. It may still happen, but we’re arguably going into a second, new phase of this cycle.
The 50-year pattern of silver more than catching up to gold broke last year.
Recently, even mainstream analysts have started noticing different price action in gold and silver. We saw this after gold recovered from its Sunday night “flash crash” earlier this month—but silver didn’t.
I wouldn’t read too much into such short-duration fluctuations, but the high correlation gold and silver have had over decades appears to be breaking down.
The correlation between gold and silver prices since 1975 (the first year for which I have LBMA data) is +0.8876.
The 10-year figure is +0.7511.
But…
Over the last year, the correlation between gold and silver prices tanked to just +0.1959.
Granted, it’s back up to +0.6329 over the last six months, but that’s still historically low.
And if I’m right about this, it’s just getting started.
That’s another point worth stressing:
I’m talking about a gradual change over time, not a completely new set of fundamentals for silver right now.
Take my view that when the world adopts a new gold standard, it won’t be bimetallic—that’s likely many years down the road.
Today, silver is still seen as a monetary metal in large swaths of the world.
Silver’s increasing industrial uses—including its important role in the world’s shift to “green” energy—don’t change that. They make silver a win-win metal for the near term.
I’m as bullish on silver as ever.
But if my plans had included stacking silver coins to buy groceries in the future… I’d probably change my plans.
The upshot is that we should not be surprised to see silver and gold respond to economic inputs differently going forward.
We should expect these differences to grow over time, as silver’s industrial uses become more dominant in its pricing.
This being the case, I plan to increasingly prioritize silver’s industrial aspect in my investment decisions regarding silver stocks going forward.
That’s my take,
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