As mentioned in a few of my older posts, diversification has always been the key to success of any financial portfolio. It’s important to diversify because several sectors in the global economy will move asynchronously in cycles experiencing downsides. Gold and silver both do not move along with other investments, making them the perfect assets for diversification.
Silver is considered as “poor man’s gold,” so private investors who don’t have a lot can turn to it when the economy is bad. Right now, gold costs around $1,200 per ounce, while silver is merely at $16 per ounce. Silver, along with gold, is considered legal tender so it can be used to trade for products and services in many countries around the world.
Unlike fiat money, silver has many other purposes apart from a currency. It has always been used in the construction of buildings, electronics, medicine, and solar panels. It is because of silver’s intrinsic value that the metal will always have a demand somewhere in the world. In 2013, India boosted its reserves significantly. The country reported a total of 6,125 tons of silver, which was a 190% increase over what it consumed in 2012.
Silver’s demand by the private sector has also increased in recent years. In 2013, silver coins enjoyed all-time highs, with Silver Eagle sales increasing more than 25%, and Silver Maple Leaves by around 55%. The trend continued last year when Silver Eagle coin sales in the first few days of May matched nearly half the sales for the entire month of May 2013.
In 2011, silver prices peaked at around $46 an ounce. This was partly influenced by the Fed’s Quantitative Easing (QE) program, which aggressively bought bonds and printed more money into the system. When there are huge changes imposed by Central Banks that could negatively impact the economy, investors get alarmed and turn to precious metals. At the start of 2015, The European Central Bank has announced its very own QE so gold and silver prices would probably be more volatile than before in the coming months.