Why Silver Is an "Oak-Solid" Investment / Commodities / Gold and Silver 2022
Imagine what an oak tree's underground rootball looks like, with supportive tendrils spreading out in all directions, notunlike what the limbs of this magnificent specimen are doing above-ground.
The result is an impregnable presence inall directions of the compass. "Open on strike and at depth" as amining geologist might say.
Like Mycelium (the vegetative part of afungus-like bacterial colony consisting of infinitely branching thread-liketendrils that can produce everything from plastics to plant-based meat), silverpermeates life across all cultures and climates.
A strong case can be made that a severe andsustained shortage of silver could impede and perhaps even cause an implosionof humankind's technological-quality of life.
If this sounds like an exaggeration,consider that the USGS Mineral Resources Program estimated the timing range forpeak silver production to be between 2027-2038... the best estimate being 2034.
Five of the last six years have alreadyseen lower global production, with ore head grades consistently declining forwell over a decade.
Silver is like the oak tree inmany respects. Its several-thousand-year history of providing a reliable valuehas spread throughout the world's chronology like a mosaic.
Silver’s physical manifestation is from andof the earth. The multiplicity of uses by which silver has insinuated itselfinto our daily lives defies description and listing. Several years ago, thetotal count of silver’s uses exceeded 10,000. It continues to advance inattributes and accounting by leaps and bounds with no end in sight.
Like the Oak tree'sroots, silver deposits are mostly "epithermal," formed at relativelyshallow locations compared to other metals.
Yes, some silver is found at significantdepths, but relatively speaking, this is an exception to the rule.
Recently, I participated in an interviewhosted by Chris Marcus at ArcadiaEconomics. We carried on a wide-ranging discussioninvolving geopolitical socio-economic concerns of the day and inevitablyreturned to the topic of silver.
The unprecedented freezing of Russia'sexternal assets, exclusion for much of its commercial transactions from theinternational exchange SWIFT system, and – as armed conflict rages on – theimponderable consequences for the world's actors and population from thisbehavior feels like a paradigm shift that could take a long time to play out.
As Jim Rickards says:
“Unlike a stock marketcrash, this kind of interbank distress does not happen all at once. It can takedays or weeks to play out. Still, those ripple effects or spillovers arecoming. We’re probably in the opening stages of a major global liquiditycrisis. What happens in Russia doesn’t stay in Russia.”
The term that comes to mind is"contagion." This is where a financialasset class like euro bonds, negative interest rate derivatives or largecommodity transactions freeze up, "jump financial lanes" and causeunexpected existential issues with, say "paper gold" or silverderivatives, many of which are backed by "confidence", but little orno physical metal.
What happens when international financialtrading rules having predictable outcomes for all parties concerned no longerwork?
If Saudi Arabia, long the bastion ofrequiring oil to be purchased in petrodollars (for which customers globallymust first exchange their own currencies before conducting business) now beginsaccepting gold, yuan, or rubles instead?
Will the ability of the U.S. to finance itslifestyle by issuing additional petrodollars (greenbacks circulating outsidethe U.S.) be hobbled, resulting in still more elevated and persistentinflation?
And through all of this, silver, just aboutthe only metal on the board to do so, is trading for around one-half of its1980 nominal price high. Priced at an 80:1 ratio, not to mention being mined ata 9:1 ratio compared to gold!
Does anyone see a pricing disconnect here?
"Money will find a way."
That will (soon?) be true of gold andcopper (one of the three monetary metals traded in ancient Babylon.). And ofsilver.
As currencies around the globe continue todeteriorate, more people will of necessity be forced to buy precious metals –if they can be found – regardless of the price.
We saw this last year in Turkey, Lebanon,Argentina, Mexico, and now Canada. A decline in the euro itself may be next. Ifso, tens of millions of people on the Continent (exclusive of Britain, whichleft the European Union) could become impoverished in short order.
The USS Constitution, also known as OldIronsides, is a three-mast wooden-hulled frigate of the U.S. Navy. Theworld's oldest ship of any type still afloat, (launched 1797) its sides aremade of white oak.
Fighting English warships during theAmerican Revolutionary War, the enemy's cannonballs literally bounced off itssides. Could this be an apt analogy for the persistent ability of silver to"deflect" inflation's ravages?
"Warfare Silver" – An Unexpected Demand Driver.
The fighting going on in Ukraine, even ifit does not spread to directly involve U.S./NATO forces, will pose a new demandfactor for silver. Not only due to ordnance restocking by both combatants, butwith a follow-on effect as all countries "in the neighborhood" rampup supplies of high-tech weaponry, which in sum will require prodigious amountsof silver.
Inflation Uber Alles
If there was even the possibility thatinflation might subside before long, $15 a bushel wheat, $125/bbl oil, possiblythe smallest Florida orange crop since WW II, $3,300/ounce palladium, and $5+copper have put paid to that idea for the foreseeable future.
IF, with all that's going on today – whichwe've been chronicling chapter and verse for some time – you're still"underweight" silver and gold, or worse yet holding none at all, youcould end up standing empty handed as the Silver Train leaves the Station.
If that happens, you'll have no one toblame but yourself.
David Smith is Senior Analystfor TheMorganReport.com and a regular contributor to MoneyMetals.com. For the past 15 years, he hasinvestigated precious metals’ mines and exploration sites in Argentina, Chile,Mexico, Bolivia, China, Canada, and the U.S. He shares his resource sector findingswith readers, the media, and North American investment conference attendees.
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