Poor Man's Gold

 I am old enough to remember when the Hunt brothers (Nelson and William) attempted to corner the global silver market in the 1970s, which subsequently imploded in March 1980. Using significant leverage, these two sons of Lamar Hunt amassed a huge silver portfolio, buying physical silver and futures contracts. Their buying activities contributed to a massive increase in silver's price, rising from $6.00 an ounce in 1978 to a record high of $49.45 per ounce in January 1980. It was a crazy time, especially on the economic front with inflation hitting double digits in the late 1970s. I had started working at The First National Bank of Ottawa in 1978 when the price of silver began its relentless climb. People started to sort through their loose change and coin jars to pick out pre-1965 U.S. coins. Coins minted in 1964 or before were primarily (90%) made of silver, and the melt value was significantly higher than face value. Bank customers were finding safe places to store their sterling silver. Everybody was talking about silver and how it was set to blow by $50 per ounce. Needless to say, the silver bubble burst with values eventually retreating to the $5-$6 range. It made another run at $50 in 2011, peaking at $48.70/oz. before sliding back to the $10-$20 range.

Fast forward to the 4th Quarter of 2025. We find ourselves in the midst of the third major silver bull market in the past half-century. The precious metal has finally breached the $50 per ounce plateau. Silver is up 70% in the past 6 months and 22% in the past month. Extreme optimism, make that euphoria, has seized the silver market in 2025. Many market participants, especially those selling their book, are predicting silver reaching $100/oz. or even much higher. Before expressing an opinion on those predictions, let's take a look at some fundamental conditions that can influence the price of silver.

Silver has widespread industrial uses, primarily because it is the world's best electrical conductor. It shows up in almost every electronic device. If something has an on-off switch, there's probably some silver inside. Every electrical connection in a modern car is activated with silver-coated contacts. Electric vehicles contain more silver than internal combustion autos. Despite the Trump Administration's disdain for solar energy, this source of energy will continue to expand. Solar cells, also known as photovoltaic cells, convert sunlight into electricity. Silver powder is turned into a paste that's loaded on silicon wafers on a solar panel. The bearings in jet engines and helicopter engines require silver because they operate for long periods at high temperatures. Silver also serves a purpose in medicine. It helps fight germs, serving as a longtime go-to antibiotic. Silver is an important component in the water purification process. It prevents bacteria and algae from building up in the filters of purifiers. I'm not sure if it qualifies for "industrial" use, but sterling silver jewelry and tableware have historically been in demand by consumers in most cultures. By definition, sterling silver is 92.5% silver and 7.5% copper. Another non-industrial utilization of silver would be as a component in an investor's portfolio of assets. That will be addressed shortly after addressing the ongoing silver squeeze in terms of supply and demand.

Global silver demand is surging while supply provided by mining operations has either been stagnant or declining over the past decade. It is estimated that silver has been in a 10%-20% annual supply deficit over that time period. This consistent market deficit has drawn down above-ground reserves. The primary reason that mine supply remains constrained is due to the fact that silver is often a by-product of the mining of other metals such as lead, zinc, copper, and gold. Over 80% of mined silver is a secondary output of other mining activities. There are very few true silver mining plays, with the number of "primary" silver mines dwindling. There are only a dozen or so mines in the world where silver is mined as the primary metal. The current high price for silver may well trigger the development of new mines. However, that process takes years, if not a decade, due to the massive red tape and regulatory hurdles. Another drag on silver supply could be the fact that its price is somewhat inelastic. An increase in price may not lead to higher supply. This is primarily because, as mentioned, silver is a by-product of base metal mining. Economic slowdown could dampen demand for base metals - therefore, we may not see an increase in the mining supply of silver.

For those who readily embrace conspiracy theories, there is one out there involving silver. According to this particular theory, the big banks (looking at you J.P. Morgan) have been consistently repressing the price of silver. The behemoth banks do this by relentlessly shorting silver futures contracts on the Comex exchange and the LBMA (London Bullion Market Association) exchange. For commodity futures, such as silver, buyers rarely stand for physical delivery. The overwhelming majority of contracts are closed out before expiration by taking an offsetting position. A tiny percentage, typically 2% or less, results in physical delivery. In the past few months, a significantly higher percentage of futures buyers have been "taking delivery" of physical silver. The LBMA's physical silver supplies have decreased by 30%-40%. Many informed participants in this market believe there is a real danger of this exchange defaulting on delivering physical silver to futures contract traders and needing to pay cash instead. This would inevitably trigger panic buying.

All of which leads us to the proverbial $64,000 question - where does the price of silver go from here? In a nutshell, I don't know. I will, however, tender a couple of possibilities and opine in my humble opinion which one is more likely to come to fruition. One possibility, a distinct one in my estimation, is that silver is being fueled by a speculative bubble and will fall (to the $30-$40 range) back to earth in due time. The other possibility, also a distinct one in my estimation, is that this is different, and we're in the early innings of a long-term silver bull market that will push the silver price to $100 per ounce or beyond before the books are closed on this decade. Those favoring this outcome, which includes the author of this blog, have an argument that should not be summarily dismissed. In the last few years, I have arrived at the conclusion that an investment portfolio should include some exposure to precious metals, including physical possession of gold and/or silver. Silver has been prized for centuries as a storehouse of wealth and as a medium of exchange like gold. Because of its lower value than gold, silver is more available to a greater number of people. Thus, the term "poor man's gold."

The value of silver is inextricably linked to gold. Without fail, a gold bull market eventually incites a silver bull market. We have witnessed that process work out over the past couple of years. The gold-to-silver ratio is a comparison of the price of gold against the price of silver. It is also effectively a measure of the number of silver ounces that would be required to buy a single ounce of gold. Generally speaking, the ratio has existed between 40:1 and 80:1 for most of its history. After creeping above 100:1 earlier in 2025, the ratio at this time sits at 74:1. Silver may have some more room to go higher. Although it lags in starting, silver almost always outperforms gold during a gold bull market. I remain optimistic about the direction of silver trending upward. There is a scenario that would certainly temper my expectations. This scenario would entail a reversal of foreign central banks buying gold, a dissipation of geopolitical unrest, and Congress enacting entitlement reform to reduce the obscene level of annual federal outlays. Of course, the Easter Bunny and Santa Claus also may magically materialize in the next few years.