History of Silver Bullion

Throughout time most governments or leaders utilised a bimetallic standard using both gold and silver as the backing to their local currency. In fact silver was generally used commonly as a trading currency for local tender. In the United Kingdom for example, the origin of the currency term the referred to its ability to convert the note of 1 pound for 1 pound of silver.

China is another country that has been on a metallic silver standard for hundreds of years, using silver as a form of currency dating as far back to 1500. Traditionally, the official ratio for silver to gold was 15:1. This basically meant that for 1 ounce of gold you would require approximately 15 ounces of silver. However, with the US government abandoning silver in 1870 to a monometallic standard, this caused the ratio to change significantly. This also consequently affected the supply of silver with a significant number of silver industry operators closing their mines. Comparably today, the ratio of silver to gold is 50:1 which is at a historically and potentially at an unsustainable low. Whilst they share similarities as a currency backing, the significant difference between gold and silver is that gold is horded whilst silver predominantly consumed as an industrial commodity.

In fact, industrial demand for silver has grown consistently for the past three decades due to its many unique properties of strength, malleability, ductility (i.e. unparalleled electrical and thermal conductivity), sensitivity to and high reflectance of light, and its ability to endure extreme temperature ranges. As a result, silver is used in electronic devices such as mobile phones, computers etc and with the emerging markets of China, Brazil, Russia and India and their desire to have the lifestyle and luxury items of the western world, the pressure increases further on this finate resource. In addition to its industrial uses and qualities, silver is also used in numerous health care products due to the unique antibacterial characteristics it possesses. For example, the "Silver Bullet" is used by hospitals to prevent bacterial infections in burn victims. Wound dressings and other wound care products incorporate a layer of fabric containing silver for prevention of secondary infections.

Therefore, in a world that is showing increasing concern about the spreading of disease and potential pandemics, silver is increasingly being tapped for its microbicidal qualities. With all the above consumption of silver taking place, it is also estimated that more than 95% of all the silver ever mined throughout history has already been used and is gone forever and unrecoverable at any price. In 1900, there were approximately 12 billion ounces of silver in the world. Today, that figure has fallen to about 300 million ounces of above-ground, refined silver. This means that at current prices, it would only take about four billion dollars to purchase all of the above-ground silver in the world today.

Keeping in mind that Warren Buffets net worth in 2007 was valued at around $52 billion, the value of the remaining stockpile of silver could come under immense pressure. In fact Mr Buffet, in certain periods of the economic cycle, has owned approximately 130 million ounces of silver (approximately 1/3 of the total silver supply) and was very aware of the benefits of holding this asset in his investment portfolio within Berkshire Hathaway. Going forwards, it would be very easy for a multi-national company to hold a monopolistic position within this market thus driving silver prices up further. Anyone who follows world headlines is certainly aware of increasing and ever-present geopolitical instability.

This, combined with the evolving macroeconomic landscape, can be viewed as bullish catalysts for the silver market. Silver's historic role as a store of value and investment, and its increasing demand in an environment where growing industrial use exceeds available new supplies, further suggests a bullish trend for this versatile metal.

In summary, with silver being one of the world's most important commodities both industrially and medicinally, and with its unparalleled investment opportunity for the future, silver is in an ideal situation where there is simply no substitute. [ Back ]