Silver Makes History

Dear Rich Lifer,

For most, the last year has been associated with Covid-19. But for investors, it was also the year of gold.

The pandemic sent the stock market into turmoil, which pushed investors into a gold rush of sorts. In fact, the precious metal hit its record high of $2,067 a troy ounce in August.

And today, the price of gold is $1,839.60, with gains continuing to extend.

According to new research from the World Gold Council, global investment demand for gold hit a record-breaking total of 1,773 metric tons last year, a 40% increase from the year before.

These gold investments include physical bars and coins and exchange-traded funds (ETF) that hold solid bullion, such as the SPDR Gold Shares GLD.

The report from the World Gold Council goes on to relay that ETFs across the world added 877 tons during the 12 months through December, bringing the total held in EFTs to 3,752 tons. For comparison, in 2019, only 398 tons were added.

Investments in bullion bars and coins also rose 3% to a total of 896 tons.

It is this investment demand that drives the price of gold higher. We can clearly see this when we look at the SPDR Gold Shares ETF, which gained almost 17% in the last 12 months.

The only gold commodity that shrunk in demand in the past year was, predictably, gold jewelry. Buying by central banks also decreased. This does not come as much of a surprise because demand in these sectors tends to inversely correlate with price. It’s a classic pattern: when prices rise, demand from central banks and for jewelry tends to drop.

But gold is not the only precious metal on the rise…

Silver Makes History

The recovery in silver prices began in 2019 and certainly continued into 2020. According to the London Bullion Market Association, the average annual silver price rose from $16.19 in 2019 to $20.52 last year, a 27% increase.

Then the pandemic hit, and looser monetary policies resulted in driving down real interest rates, which encouraged investors to buy into both silver and gold as “safe-haven” assets.

The bullish mood for silver has only increased in 2021. Silver prices jumped more than 10% early last week to a high of $31.10 a troy ounce, the first time this has happened since 2013. Silver prices fluctuated the rest of the week and eventually landed at $27 a troy ounce.

Going forward, the outlook for the price of silver remains optimistic, with the annual average price projected to rise by 46 percent to a seven-year high of $30.00.

Due to silver’s smaller market and the increased price volatility this can generate, many expect silver to actually outperform gold this year.

The gold:silver ratio fell to 62, a seven-year low, after the recent interest of retail investors in silver. This ratio is expected to continue to fall from an annual average of 86 in 2020 to around 68 in 2021.

And the bright outlook for silver doesn’t stop there! Global silver demand is expected to reach an eight-year high of 1.025 billion ounces in 2021. Additionally, physical investment, which covers silver bullion coin and bar purchases, is expected to achieve a six-year high in 2021 of 257 million ounces (Moz).

Silver mine production output is also expected to rise from pandemic-affected 2020 levels and reach 866 Moz, which would be the highest total since 2016. This growth will be driven by new projects in Mexico and Australia and by the reopening of mines closed during the pandemic.

So why exactly are we seeing this rise and gold and silver prices?

Why Gold and Silver are Crucial

As we mentioned briefly, when the coronavirus pandemic hit America, it sent the markets plummeting. The volatility encouraged many investors to look to safe-haven investments such as precious metals as a way to diversify their portfolios and protect themselves from the uncertainty of the stock market.

Another reason analysts and experts expect this trend in precious metals to continue is because Central Banks are printing record amounts of money to prop up their economies. Many believe that this will result in inflation and destroy investor’s faith in paper currencies.

Billionaire investor Thomas Kaplan had been predicting a rise in silver for years saying, “When you can print money at the press of a button, it’s not surprising that people would want to find a currency they believe has a limited supply.”

It is important to note that Mr. Kaplan’s investment company Electrum Group LLC, controls mines that are sitting on about one billion ounces of silver. So it does make sense that he would be supportive of this rally for precious metals.

Regardless of which billionaires benefit from the prices of precious metals rising, it doesn’t change the fact that silver and gold are important safe-haven investments that are worth looking into during these uncertain times.

Other safe-haven investments include utilities stocks, Treasury EFTs, Treasury Bonds and cash. The general rule is to increase your investments in safe-haven assets as you get older and your desire for risk decreases. This will help provide a more stable portfolio as you near retirement.

In times like we are experiencing now when economic conditions are uncertain, it’s always a good idea to take advantage of the stability that safe-haven investments can offer.

So after reading this, take the time to look at your portfolio, assess your risk and your assets, and see if you personally can allocate some funds to safe-haven investments.

To a Richer Life,

The Rich Life Roadmap Team

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