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385: Should you buy Silver?

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Catch the full episode: https://www.wealthformula.com/podcast/385-should-you-buy-silver/

Buck: Welcome back to the show, everyone. Today, my guest on Wealth Formula podcast is Mike de Renzo. Mike is executive director and secretary of the Silver Institute, which is a nonprofit international association that draws its membership from across the breadth of silver. The silver industry, including silver mining houses, refiners, bullion suppliers, manufacturers of silver products and wholesalers of silver investment products. It was established in 1971 at the Institute, serves as the industry’s voice in increasing public understanding of many uses and values of silver. Mike, Welcome to Wealth Formula Podcast.

Mike: Thank you very much. I really appreciate the opportunity.

Buck: Yeah, So, you know, it’s it’s good to talk a little bit about silver because the the noise is usually in the direction of gold. And what’s happening with gold and silver seems to be sort of the redheaded stepchild when it comes to precious metals. But how do you as a silver, as a as a silver guy, I guess, how do you differentiate silver from, you know, other precious metals?

Mike: Sure. Well, I mean, silver is unique in the fact that it’s both an industrial and a precious metal. So you’ll find no metal that has that other quality, both those qualities. Silver 50% of the silver is used in the industry. And we do have the investment and the precious component as well. So yeah, while silver is not gold, many people invest in silver purely for its industrial uses. And the fact that it’s in so many products and applications that we use every day.

Buck: Yeah. Do you want to talk a little bit about those products and things that I think a lot of people don’t know that right? That there is a that there’s applications for silver. So give us some examples of everyday things that we use that involve silver.

Mike: Sure. So essentially, if it has an on and off switch. Silver is involved. So it’s the greatest conductor of electricity in terms of metals. It’s the greatest thermal conductor of electricity. It has properties that are used in almost every application that you’re looking at today. So your computer is your cell phone’s your light switch, it’s your automobiles, your white goods, your refrigerator is washing machines and dryers and so forth.

So it’s it literally surrounds you in your in your day to day life. And if you look at the number of ounces that were consumed in silver last year, we had well over a 500 million ounces of silver were incorporated into industrial uses. So potentially half the market. So we had a little over a billion ounces of supply, a billion ounces of demand. Most of that went to industrial demand.

Buck: Got it. There’s another there’s it sounds like there’s another potential growing use of silver when it comes to this area of renewable energy. I want to talk.

Mike: A little bit. Yeah, I mean, that’s an important point. And the fact of the matter is, is that people talk about other metals and so forth and let’s take, for example, copper. Well, you know, copper has been described as the superhighway to decarbonization. While silver is the glue. So if you don’t have silver, the copper is not going to work and the copper can work in certain circumstances.

But silver really is the glue. So you look at silver as use in photovoltaics, which has grown exponentially over the last decade. You look at Silver’s use in clean energy vehicles, for example, electric vehicles, hybrid vehicles. Now we’re looking at over 100 million ounces of silver being used in the automotive by automotive industry by 2025. And quite frankly, these are numbers that were just not there ten years ago. Especially in photovoltaics. And I would encourage your users to go to our Web site at Silver Institute Dot Oregon, download for free Our latest world Silver survey, where you get a complete breakdown of those numbers.

Buck: Talk a little bit about, you know, in terms of comparisons to gold. Again, the the gold has always been sort of seen as a, you know, hedge against inflation. Presumably, silver offers a similar role, although it may actually in some respects. Yeah, I think if I think about it in practical terms, I would think it would even be a better hedge because there’s a growing need for it as well, along with sort of this idea, the way that gold, you know, gold is money is silver money.

Mike: Silver is money. Silver is money. And across the globe. I mean, if you were to buy an American eagle coin today, it has a face value. There is a price involved. Would you want to take a $50 a gold coin and buy $36 worth of groceries or a $10 silver coin and buy $5 worth of groceries? No, but it’s a legal tender. You can use it. So a lot of people do stack their portfolios with two, five, maybe even more of a percentage with gold and silver hard assets, not Bitcoin, not some of these other dreamscape commodities that have just been dreamt up in the last few years. Years, but hard assets gold, silver, platinum and palladium. All right. So people do diversify their portfolios with those.

Now, that’s not to say that these cryptocurrencies haven’t made a dent in the speculative market for gold and silver. They have. I mean, I don’t think we know exactly where that’s going to end up. I mean, every day I read about the malfeasance and the and the lawsuits and the stolen wallets and so forth. You don’t get that with physical gold and silver. You just don’t get that. But back to your original question. Is silver a store of value? It has. It is. It’s been one for over 3000 plus years.

Buck: And is it historically? Does it act in the same way as a hedge as gold or is there anything that’s different about it?

Mike: Well, I think I can make the argument the gold has not corresponded with an inflation concern this time around, as it would have in the 1970s or the early 1980s. You know, quite frankly, they’re just not behaving in the way it did a generation ago. So and Silver is following suit. I mean, we’re looking at an average price of silver for 2023 so far through the first six months of about $23.80. There are others there are people out there that argue that that, you know, the price should be triple digit. So 100 plus dollars SILVER And there are others that say that it’s a $5 metal. I think if you were to canvas most analysts across the world, they would say that we’re kind of in the middle of the range for where we are right now.

Look at the albums annual analyst forecasts, for example. I think the average price they’ve pegged for 2023 is about 24 $25 with the top end of 30 and a low of 16. So I know that our producers would appreciate a higher price, but I know at $24 and $25 as we speak today is healthy for them, but they would appreciate higher prices that way.

Buck: So what is your take on investing in silver in terms of like, does it have to be hard? Does it actually have to be physical silver? Do you think ETFs are okay? You know, I ask you because, you know, some of the gold people that I’ve talked to are very adamant that it has to be physical gold. And, you know, so I’m just curious where your take is on that for silver?

Mike: Well, I mean, there are two schools of thought here. So people buy coins, they buy bars. They either store them themselves or they have a third party custodian. You know, you need a third party custodian for purposes of an IRA account. But there are many people who like the convenience of an ETP. So an exchange traded product which only came on the market in 2006, so they’re less than 20 years old.

And that provided the convenience of an investor getting in and getting out of that investment on their own trading platforms or through a broker, much in the same way they do any other mutual fund or any equity that they may that silver is backed up, by the way, with physical silver involves that are run by custodians. Most of those vaults are in London somewhere in the United States, but it’s not a fake paper trade. There is actual silver there to back it up, as there is with gold.

Buck: One to understand a little bit about, you know, first of all, like how how is silver mined exactly? I mean, is it is it just like gold mines? I mean, is it in But there’s silver? Or maybe that’s a silly question, but I have no idea.

Mike: Sure. So it’s still a silly question because silver is unique and the fact that only 30% of silver that comes from a mined source comes from what’s known as a primary silver mine. So that’s a silver mine. A mine that has 51% silver in the ore body. Typically 70% comes to the market from other mining activities. So it’s led and zinc, gold and copper mining. And so the mining for gold or mining for gold, copper or lead and zinc, they get a silver credit because silver is in credit in the door. And when they send it off to the refiner, they’ll get credit for all those metals. But only 70%, I should say only 30% comes from what’s known as a primary silver mine. And it’s interesting to note that the silver mined supply over the last two years has decreased by about 5%. We’re thinking this is going to be a small increase this year because of some projects that were sort of waylaid during COVID. Are coming back on mine.

Buck: Are the industrial uses of silver do those allow for a recycling of of the metal?

Mike: Oh, absolutely. When you look at scrap supply of silver, there’s about, I think, over 200 million ounces last year of scrap coming back to the market. The problem with with silver and recycling, if it’s not jewelry or if it’s not coins, it’s kind of hard and almost financially disadvantaged use that is is that your advantage to take the silver out of the metal. But there are people are so if you look at cell phone recovery of all metals, copper, gold and silver, it’s it’s very, very strong. So it does happen. The problem with some of the smaller amounts of these metals and these applications, it’s just harder to to extract on it.

Buck: And and so keeping that in mind, you know, the I guess the fact that it’s kind of harder to extract and the current state of of mining, where are we in terms of the supply and demand of silver now and where do you kind of anticipate that, you know, in the next decade or so?

Mike: Yeah. So for the last two years we’ve had a deficit in the market with respect to supply and demand. It’s got 130 million ounces in 2021, 2022, it was over 230 million ounces. And this year we sort of project we do projected it’ll be around 140 million ounce deficit. Now that deficit is is widely made up by aboveground stocks. So it’s not going to affect the market to the point where it may have an immediate effect. But the fact of the matter is, is this is a trend and we’ve never witnessed this trend before. And the trend line is pointing to to continued deficits even through 2025 and 2026.

Buck: Yeah. And how about beyond that? I’m just curious if you look at sort of technology and all that, do you anticipate a growing demand for silver? I mean, is there let’s put it this way, is there competition that you foresee in the applications that are there now that somebody looking in this space might might wonder about?

Mike: Well, there’s always competition and there’s always thrifting. Right? And then junior manufacturer would rather use a less expensive metal. The problem with that, though, is that when you look at those other metals, they don’t get the they don’t get the excellence and the quality of silver. So if you take solar panels, for example, you know, solar panels have one side is coated with the silver powder paste and it stores the heat, but is later turned into electricity and so forth. And while they have tried to use other metals and in some cases they’ve been somewhat successful, the manufacturers have come to learn that it doesn’t have the longevity in a solar farm or, for example, in a private residence. So silver will be there. The question is, will they continue to reduce silver loadings? Probably. But will the installations of solar panels increase throughout the world? Absolutely.

Buck: Where are most of the silver? I mean, is it, you know, what continent or country sort of dominates the space?

Mike: It’s typically you’ll find it’s in Mexico and then Peru and then China. Those are the top three countries with respect to silver supply.

Buck: Got it. I’m just curious and again, this is, you know, just going back to the gold comparisons, when you look at those prices, regardless of how they’ve come up and come down together over time, why is silver why is silver so much cheaper than gold?

Mike: There is more of it in the fact of is it’s just less rare. And that that’s true of almost anything we buy, right? You know, you could go buy an $11,000 car or you can go buy a $100,000 BMW electric vehicle. Not to say that there’s less BMW at that price level. I mean, it comes down to consumer choice and so forth. But silver has traditionally been a lower priced metal through through history.

Buck: You know, historically, too. And correct me if I’m wrong, because, again, this is not my space, but there’s been a typically there’s been sort of a a ratio, right. A gold to silver ratio. And what is that typically?

Mike: So with the gold silver ratio is is how many ounces of silver does it take to equal the current price of gold? So I don’t know what that figure is today, but we’re at about 24, $25 silver and I think we’re at about 20 sorry, 1900 gold 19 and changed 1971. So you just have the times you know divide 1970 by 2490 and you’ll get that current ratio and a lot of investors pay attention to that ratio. And what they’re looking for on the silver side is a lower ratio, 70 lower eighties, sixties. But right now it’s rather high.

Buck: It’s rather high. Got it. Got it. So the tell us a little bit more about what you do over there at the Silver Institute.

Mike: Sure. So as you mentioned, we started in 1971. I wasn’t there then or here then, but over 50 years, we’re a marketing agent for Silver, So we talk about all of its qualities of its users who put out reports on silver. Many consider our annual World Silver survey to be the Bible of the industry that’s widely quoted year in and year out, widely referenced by journalist, analysts, government officials and so forth.

We have a team of 30 plus people that we hire at metals focus in seven countries to get this data. And the difference between that data and other data that you see is this is on the ground interviews and meetings and conference attendance with the miners, with the end users, with the refiners, with the traders getting a complete full sense of that market. So we’re very comfortable with that report. But we also put out other information and we have a free bi monthly sober news which contains interesting stories on silver. Could be on silver and the latest health application for silver. It could be on the latest manufacturing issue that incorporates silver. So that’s a bi monthly publication. You can sign up for that for free.

All of our publications are available at no cost in PDF format. We put on conferences, we attend conferences. I’ll be speaking this year and probably if you look at the webinars and podcasts, well over 30 events in that includes live events overseas and domestically as well. So our members are the leading mining companies, as you mentioned, and also the refiners and users. And our survey sponsors also include those that trade, Silver said the various leading banks that trade silver.

Buck: Well, good stuff, Mike. It’s something that I think that people sometimes ignore. I think it’s a good idea to get educated on it, and I appreciate it.

Mike: Yeah, I really appreciate your time and I encourage your users also to follow us on Twitter at Silver Institute. We put out one or two tweets a week on various aspects of silver, and we talk about everything from solar demand to did you know that the World Cup trophies are made of silver or that the World Series trophy is made of silver? We heard that the Vince Lombardi Trophy is made. It’s silver. The Wimbledon trophies are made of silver or the Major League Baseball. And so our tagline is Silver is actually for champions.

Buck: They’re not sold. That’s funny. Okay. Well, a little healthy, a little controversy there, but good enough. Again, the the website is Silver Institute, Georgia. Also, people want to go and learn a little bit more about that. Mike, thanks again for joining us and Wealth Formula podcast.

Mike: Really appreciate your time. Absolutely. Thank you.