Silver Still Isn’t a Store of Value

Once upon a time, there was a shiny precious metal everyone said was even better than gold. Unlike that yellow lump, they preached, this glittery wonder wasn’t just a store of value but had industrial uses and actual, rational sources of demand. Cyclical properties! This assured its future as a wonderful investment, they said. What was this allegedly perfect security? Silver, of course! And for a few weeks in 2011, it rode this hype train, booming to a record high of $48.48 that April before busting spectacularly.^[i] It never got back.

We bring this up because the silver apologists are at it again, hyping the shimmery grey metal for the same reasons and extrapolating its recent returns forward. Don’t fall for it. Silver is just a commodity, nothing special. We don’t think it has much use in a long-term portfolio.

It is easy to see why the silver-tongued bulls are so alluring. Who wouldn’t want something that is both a stable store of value and a beneficiary of economic cyclicality!

But this pitch is your first clue to tread cautiously. It is a precious metal version of claiming a security can provide both capital preservation and growth—which is basically the financial version of world peace and calorie-free cake. A security that truly preserves capital doesn’t fall in value, ever, which means it has no volatility, ever—and no growth. A security that grows will always be subject to volatility, which entails the risk of short-term declines. Investing is about balancing these tradeoffs—long-term growth and potential short-term negativity—not eliminating all downside. If silver has cyclical traits, then—by definition—it goes down as well as up. Something that goes down is not a store of value.

Silver surely isn’t. Exhibit 1 shows its history since the end of 2007. Soak it in.

Exhibit 1: Silver Is Most Definitely Not a “Store of Value”

Source: FactSet, as of 9/27/2024. Silver spot price (New York), 12/31/2007 – 9/27/2024.

Among the things you may have noticed: It lost over -50% of its value from roughly the time of Bear Stearns’ bankruptcy that March through late November, the aftermath of Lehman Brothers’ implosion and the US government’s dismantling of Wall Street as we knew it. During this chunk of the global financial crisis, it bled worse than global stocks. No store of value there. Silver’s spike in late 2010 and early 2011 was a fun ride, we suppose, but the wild crash that followed sure wasn’t. Nor was its languishing throughout most of history’s longest bull market in the 2010s. And even with its recent run, it is nowhere close to 2011’s high. Anyone who bought it during that frenzy is still waiting for it to return to the value they thought they stored in it 13 years ago.

Which also guts the claims about silver having excellent cyclical properties. Something that is really, truly cyclical booms when the global economy is hot and busts when it is not. If silver actually rode economic trends, it would not have that huge flattish stretch in the 2010s, a time of rock-solid global growth. In that span, things that are actually cyclical—like stocks!—did swell. Silver? Well … did something that rhymes with swell.

This tells us what silver actually is: a commodity. A pretty one that goes great with some of our skin tones. But just a commodity. Commodities don’t follow economic cycles. They follow commodity cycles, which go something like this:

• Demand grows faster than supply. Prices rise.
• Producers think about opening new mines but move slowly because up-front costs are expensive.
• Shortage brews. Prices keep rising.
• High prices finally tip the scales, producers start constructing new mines.
• New mines take a while, so prices keep rising, prompting more investment.
• Shortage reaches fever pitch. Prices peak.
• New mines open. Supply rises. Prices ease.
• New mines keep opening. Prices keep falling.
• And opening.
• And falling.
• Supply glut forms.
• Investment falls.
• Eventually supply and demand balance.
• Start cycle anew.

This tells the story of metals in the 2010s, to varying degrees. Exhibit 2 shows a smattering during the 2009 – 2020 bull market. All boomed early on, amid shortages. Then they busted as new supply came online. Some started recovering later in the decade. Some didn’t. The specifics of each metal varied, but the trend was broad. And it was all tied to commodity supply and demand, not the global economic cycle. The latter affected demand, but supply swamped it.

Exhibit 2: Select Metals Prices in History’s Longest Stock Bull Market

Source: FactSet, as of 9/27/2024. Spot prices, 3/9/2009 – 2/19/2020.

Doesn’t silver look right at home there, being just a commodity, booming and busting with its metal friends? We sure think so. That is where it belongs, dear readers, in the just-a-commodity bucket, with prices prone to all the vagaries of that bucket.

For long-term growth, we think stocks stand out, even now, as they are at all-time highs. Fear of heights can make people interpret “record high” as “peak.” But only one record high in each bull market turns out to be the actual peak. The rest, and there are usually dozens, are just arbitrary mile markers on the way to it. They aren’t predictive. Stocks’ level and speed alone won’t tell you which record high is the actual peak.

Lastly, we would be remiss not to point out that if you are after an investment that rides global economic trends, that is stocks! Not one-to-one, as political drivers matter and stocks are a leading, not coincident, indicator. But economic growth helps drive corporate earnings, and stocks are a share in those earnings. If you expect a thriving, growing economy, then stocks are a share in that. Much more than any metal, precious or otherwise.