Resource World Magazine

22 www.resourceworld.com J U N E / J U L Y 2 0 1 8 Speculations by Leonard Melman A s we approach mid-year 2018, silver investors, present or poten- tial, are faced with a strange enigma. While the fundamental case for silver outperforming gold appears to be gathering strength, the actual performance of silver compared to gold during 2018 has been lackluster, to put things mildly. Despite occasional sharp but short-term rallies, trading in silver has been confined within a narrow range of US $16 to $18/oz since the start of the year. The case for silver relative to gold does indeed appear promising on several counts. For example, while the primary purpose for buying and holding gold, for the most part, is monetary in nature to protect against fiat currency diminishment over time, silver not only possesses a simi - lar historic monetary function, but also enjoys robust industrial demand as well. Commercial usage for silver was once mostly confined to the photographic and jewelry worlds but now comes from many new sources – some of them which appear to contain prospects for rapid and sustain - able increases in demand. One area of growing silver applica- tions is for medical purposes thanks to its well-known attributes of being the most powerful chemical element in terms of hav - ing potent anti-bacterial action with the least toxicity to animal cells. In addition, silver interrupts the ability of bacteria cells to form certain chemical bonds essential to their survival. Among many medical uses for silver, Wikipedia lists wound dress - ings, creams, antibiotic coatings on medical devices, endotracheal tubes, cath- eters, x-ray applications and others. One other relatively new and exciting area of silver application is within the solar energy field as a result of two of silver's most important attributes; the highest electrical and thermal conductivity of all metals plus being the most reflective. These properties make a highly valued material for the production of solar cells. The potential increase in solar cell pro - duction could be enormous thanks to the growing political groundswell in favour of renewable energy sources as opposed to those relating to fossil fuels, a demand which is expected to swell significantly into the future. As an illustration of that increasing demand, USA Today newspaper recently published a study which deter - mined that silver demand for solar devices amounted to 52,000,000 ounces last year and was expected to reach 100,000,000 ounces in 2018. The article also noted, "… This increased demand for silver could have a real impact on the solar marketplace in the years to come as solar could push up the price of silver." (my emphasis) Resource World was fortunate enough to interview Dave Morgan, a noted expert on the silver market and Editor of The Morgan Report, a monthly newsletter relating to silver markets worldwide. During our discus - sion, Morgan noted three items in particular. First, in his opinion, silver had a natu- ral advantage over gold which he believed could allow silver to outperform the yel- low metal over time. As mentioned above, while both metals have lengthy histories in terms of monetary values, industrial uses for silver have grown substantially in recent decades. Morgan noted that indus - trial demand for silver accounted for only 35% of total supply in 2000, but recently that figure had grown to 55%. There is another factor which I dis- cussed with Morgan which we both believe is working to the special advantage of silver over gold. For economic reasons, middle and lower income investors have a natural tendency to choose silver over gold simply because of their relative prices. Morgan affirmed his belief that this spe - cific demand source was at least partly instrumental for the tremendous silver bull of 1976-80 which saw silver prices soar by almost 1,500% compared to gold's gain of about 700% during the same period. Next, he indicated that a possible new source of important demand could well be as an essential component in batteries for electric cars, particularly in view of the staggering future growth predicted for those vehicles. As this is written, approaching mid-May 2018, the price of gold is near US $1,300/ oz while silver stands close to US $16.50/ oz, making the gold/silver price ratio almost exactly 80 to one! This ratio is dramatically above the historic monetary ratio of just 16 to one and is also far above the mean of the past 50 years. Therefore, it seems possible, even probable, that the ratio will move back toward the mean which would result in a strong upward move in silver's price rela - tive to that of gold. Somewhat surprisingly, during the past three years, despite the advantages noted above, silver has actually slightly under- performed relative to gold in percentage terms. The consideration for investors, therefore, is to determine whether silver's apparent strong fundamental advantages over gold will be translated into positive gains in the precious metals marketplace. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relat- ing to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca Looking at silver – more than a poor man's gold

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