Silver: Industrial Metal Or Money?

While silver is still holding strong into 2014, its price performance is not nearly as impressive as many have come to expect. Is this a bad thing? To my mind, not really. First off, there is no guarantee historically that silver has to move with the other precious metals, or outperform them. As recently as the period from early 2009 to late 2010, silver was stuck in a fairly tight trading range from 14 to 18 dollars, while gold was going on to new highs. Similar examples can be found in the last secular bull market in the 1970s. Sometimes silver would move with gold, and sometimes not—and only some of the time would silver wildly outperform the yellow metal—even as all precious metals saw higher prices from the late 1960s through 1980.

The second reason why we shouldn’t be too concerned about silver’s recent lethargy relates to the perception of silver as an industrial metal. While it is true that silver’s investment demand has grown impressively over the last decade, it is still the case that over half of silver’s demand comes from industry—and it is also true that silver industrial demand is not yet exploding higher the way many had been expecting during the heady days of 2011.

Dr. Copper's Negative Impact on Silver Speculation

As long as the perception of silver as an industrial metal holds sway, then we have to acknowledge another recent headwind for the white metal: the price of copper. Dr. Copper, as it is often called for forecasting economic downturns, does not seem to be doing so well of late. In fact its price has declined over 10% in just the past few weeks. Many attribute this to problems in China, or in the Chinese banking system, where many have invested one way or the other in this truly industrial metal. With recurring fears of a global slowdown (because the global economy never really heated up in the first place), it is not surprising that copper is taking a hit and—to some extent—limiting the upward thrust in silver prices apparent since early January.

Even as copper is getting hit, though, on fears of a global slowdown, another far rarer industrial (and precious) metal, palladium has been inching ever closer to the 800 dollar level, a three year high. Palladium is a metal with tight supplies that can only be mined in a couple of places around the globe. One of these, South Africa, is having all sorts of problems with its mines and miners. Supply may be further crimped in the months and years ahead. While palladium does not have any history as money—or much of a current-day monetary following, I do have to wonder to what extent precious metal speculators are beginning to focus on going long the platinum group metals instead of deciding to take on speculative long positions in the silver market. It is likely that as copper is focusing people’s fears on an economic slowdown, palladium is at the moment stealing some of silver’s thunder as a rare, in-demand precious metal whose price is still very much too low.

Remonetization of Silver Continues

And yet, here in the United States, at least some people continue to vote with their feet away from the money monopoly of the Federal Reserve, central banks, and fiat currency—and into precious metals like silver. In sympathy with legislation passed over the prior three years in Utah and Arizona, this week the Oklahoma legislature approved legislation that appears to not only recognize gold and silver coins as legal tender, but that also opens up the possibility that people can use the metals’ market monetary value (and not just the stamped value of the coins—which is far lower) when conducting trade. In keeping with a movement popularized by former Congressman Ron Paul and other advocates of competing currencies, some politicians in Oklahoma understand that people may want to take back some of their monetary sovereignty from those who have so badly mismanaged the world’s reserve currency. The desire to create competing currencies—as well as to reaffirm the legality of the only money specifically mandated in the Federal Constitution, gold and silver—will have long term implications for anyone investing and speculating in the silver market.

At the moment, of course, it feels as though the system has marginalized precious metals like silver, and that the movement to bring back constitutional money is moving at far too slow a pace for many of its supporters out there. And yet when we think about how far this movement of ordinary citizens to bring back gold and silver has come in just a few short years, I think it is a mistake to count the movement out.

Whether or not you agree with efforts to remonetize silver, I hope you do understand that few things have proven their utility as money over thousands of years as well as silver. And at just a little over 20 dollars an ounce, it is far easier for average people to get their hands on a decent amount of this very real monetary metal.

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University of San Diego Lecturer

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