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In the world of precious metals, silver spends a lot of time in the shadow of its big brother gold.
Gold, with its high price-to-weight and distinctive yellow tint, has always occupied a special place in the human psyche. To many people across many ages, gold is simply the ultimate form of money - and, as a long-term, stable store of value for one's personal wealth, I agree it's hard to beat.
However, rare circumstances are aligning today that I believe will make silver the true champion of this bull run.
WHAT'S DRIVING PRECIOUS METALS?
Gold and silver are both benefitting from a perfect storm in the sector.
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Dollar devaluation means that much of the 'gains' we see are really just losses by people holding dollars. In other words, if your dollars lose 50% of their value, it's going to take twice as many of them to buy the same ounce of gold.
But the rally is based on more than simple inflation. Precious metals are regaining their role as the ultimate reserve asset. That means many, many more people are buying and holding these metals than at any time in the last thirty years.
Another factor is the rise of emerging markets and decline of developed markets. As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it. This means there are a mind-boggling number of new customers for jewelry, savings, and industrial products that require precious metals - and that we are becoming less and less able to outbid them for these resources with our dollars.
SILVER'S DRIVING FASTER
If the world were going to hell in a hand-basket, then I would expect gold to outperform silver. However, it is only the developed economies that are on the rocks - and only the US that faces true catastrophe. Thus, we have seen silver outperform gold for the last eight years.
The market is telling us that while uncertainty reigns supreme, the global economy will prosper in the years ahead. While gold most effectively insures the investor against economic devastation, silver offers both a shield against monetary turmoil and exposure to market growth.
THE KEY: INDUSTRIAL DEMAND
This is because silver is both a precious metal and an industrial metal. Gold is mostly precious, copper is mostly industrial, but silver strikes a fine balance between the two. And it seems as if this moment in history is perfectly suited to this balance. We are facing not only the prospect of the collapse of the international monetary order, but also the largest industrialization process the world has ever seen.
While in a past era, wood, steel, or oil would have been the most critical commodity, today silver is used in everything we hold dear: iPhones, flat-screen TVs, batteries, solar panels, etc. Asia - the new heart of the global economy - is accumulating gold, but they're consuming silver. That makes both metals good bets, but likely gives silver the edge.
