The Silver Revolution

Over the past several years, thousands and perhaps millions of people have made the unconventional move into physical silver bullion. Although they represent a very small number of people, the fact they are doing this at all represents a remarkable change. Those who buy physical silver are often doing it against the wishes of the so-called financial services industry of brokers and other asset gatherers who only seek to steer people into approved investments, most notably at the moment, stocks.

Those who move some or all of their assets into unconventional alternative investments are doing so against the desires of the “system” demonstrating that an important shift in mass consciousness is underway. This shift can also be seen in the alternative media, which has exploded over the last 10 to 15 years. Some have likened the flowering of the internet to the creation of the printing press over 500 years ago. The new medium for spreading knowledge breaks down knowledge cartels and monopolies, enabling average people to think for themselves, to be able to manage money for themselves, and to see that many of the world’s leaders are the proverbial emperor without clothes. These leaders did not see the last crisis coming, and they likely will not see the next one coming, either.

Silver as Geopolitical Hedge

While there are many reasons to buy physical silver—and not all of them have to do with gloom and doom--- it is still the case that silver can wildly outperform other assets during times of financial or geopolitical stress. This is what makes precious metals like gold and silver non-correlated assets: they can do a good job stabilizing a portfolio when it is getting whipsawed by the unpleasant waves of history. While many have woken up to the reality of a genuine crisis hedge, there are still many who have yet to make the move into the alternative asset arena.

The recent news concerning the Russian occupation of parts of the Ukraine, and the resulting threats being tossed back and forth reminiscent of the Cold War, reminds me that silver has a history of moving powerfully higher when politicians are saber rattling or otherwise getting people into war. The most famous example of this came with the Russian invasion of Afghanistan in the late 1970s. This invasion was an important catalyst behind higher prices for the white metal (with the help of some Arabs and the Hunt brothers, of course.)

Silver as a Strategic Asset

Sometimes, nations also engage in economic warfare, be it boycotts, sanctions, or asset seizures. There is discussion of this reality again this week, and it is a reminder that silver (along with many other natural resources like oil) is an asset that can get caught up in economic and political warfare between nations. As a military asset, silver is useful in numerous kinds of aircraft, missile-technology, as well as all of the electronics increasingly relied upon by many militaries in the world. Once upon a time, the United States maintained a stockpile of silver of several billion ounces (compared to today where that number is probably less than 50 million, a tiny fraction of its former size.) This stockpile not only existed for monetary purposes, but it also existed because the military might need silver in wartime. Many have written about the varied uses of silver for industry and the military—and it may make sense in the future for governments to once again begin to stockpile the white metal. Another reason for the government to hoard silver may be in conjunction with other rare metals ---like palladium—that are badly needed in the automobile industry.

Any sort of official stockpile buildup in silver would represent an enormous change in the silver market. Few expect it, but few expected the crises of the last several years. The involvement of the “official sector” in the silver market is also related to the issue of remonetization of a metal that, although possessing every monetary characteristic of gold, has a collective value of less than 5% of gold on the world market.

We have yet to hear about official interest in restocking silver—which by the way could be done by any of a number of countries who, like the United States, have similarly reduced or eliminated their silver stockpiles.

When coupled with the continued global interest in the white metal (demonstrated this week when official demand figures out of India showed an impressive increase in silver hoarding), and when coupled with a continued, stated desire on the part of some central bankers for dramatically higher inflation in the years ahead, I have to wonder where the silver would come from to satisfy official stockpiling of the white metal.

The reasons for higher silver prices are many—any one of them could make silver a fantastic investment for years to come. This is an added bonus for those holding the white metal as a needed safe haven to hedge against uncertainty.

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University of San Diego Lecturer

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