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Incrementum, a wealth management company based in tiny Liechtenstein and known worldwide for being one of the leading gold bull firms in the world and for its annual gold report, has come out swinging on silver’s behalf.
This year’s 359-page In Gold We Trust 2020 report for the first time devotes a large section to gold’s “poor cousin”.
The message is clear and unambiguous.
One, silver is unloved but there has rarely been a better time than now to invest in it.
Two, silver investors have several supply constraints working in their favour.
Three, there is also the “intriguing” possibility that one source of supply flips and becomes a source of demand as happened with gold. That source is government.
Four, the gold-to-silver ratio indicates that the present day offers history’s greatest discount on one of humanity’s most important and useful metals.
Five, silver will begin its inflationary journey sometime in the near future.
Six, adds Incrementum, “we will be surprised if the decade or two ahead are not some of [the] best years in silver’s long history”.
“Silver is unloved, unwanted and mocked”, begins the report’s chapter on the white metal.
Industrial demand is stagnant, courtesy of one of the poorer periods of economic expansion in the past 150 years.
Decorative demand is stationary, the result of real income growth falling woefully off its post-Second World War trend.
“And what of price?” the report asks.
“Sorrowful — by one measure its value has not been lower in over 300 years. By another measure, 5,000 years.”
“In other words, for the prudent and contrarian-minded investor, there has rarely been a better time to be attracted to silver,” the report concluded.
Silver mine supply is inelastic because 75% of it comes from non-silver mines (copper, zinc-lead and gold deposits, mainly).
When the price of silver rises, the mines that produce silver as a by-product will not automatically seek to produce more silver, especially if demand for industrial metals dips in a post-virus period.
These non-silver miners have been reducing capital spending over the past decade.
“Overall, of all the sources of silver supply, only two — recycled jewellery and coins — are not in a state of pre-ordained stagnation or contraction,” said Incrementum.
Over the past 30 years, as much as 30% of total silver supply came from elsewhere than mining: government sales, recycled scrap and producers hedging future supply.
Since 1990, mines where silver is the main product have accounted for between only 16% to 32% of annual supply of the metal.
The consensus forecast is that mine silver supply has reached a plateau. The Silver Institute is predicting a 5% output reduction this year, thus a dip of 40 million ounces.
While central banks are now net buyers of gold, they are still net sellers of silver — but, it must be emphasised, at a rate that is falling.
From 2007 to 2011, despite silver prices hitting their nominal peak, government sales averaged only 29Moz per year, or just 3% of silver consumption.
From 2012 until 2015 only 12Moz in total (not per annum) were sold by central banks.
Since then? Nothing.
“Let us raise the tantalising possibility that governments will, in the coming decade, add to their reserves with silver, not just gold,” says this report’s authors.
China, India, Mexico, the United States, Russia and Poland are all countries with healthy silver deposits and/or historical use of silver as a monetary metal. They are all possible candidates for central bank buying some of the output.
Silver has been a holding of central authorities for more than 250 generations and as late as 1991-92 governments were net buyers of silver, the report added.
During the 1990s some 75% of recycled silver came from extraction from photographic film. Today that proportion is down to 15%.
Indeed, between 2008 and 2012 scrapped photographic film was accounting for just 5% of recycled silver.
Scrap from industrial uses has been averaging 9% per annum of the total recycled silver.
But Incrementum points out that industrial activity of late has been poor — and is set to get poorer in a post coronavirus world.
Two of the three broad categories of silver have suffered “terribly” for the past dozen years.
The report noted that industrial demand has effectively exhibited no growth as global trade has deteriorated, foreign direct investment decayed, and economic growth declined as the 2008 financial crisis remains unresolved.
Decorative demand has similarly gone nowhere because real incomes are growing at one-seventh the speed of the average annual trend since 1945.
“And now we have 2020, a year destined to destroy industrial and decorative demand.”
“It all sounds rather depressing — but it is not,” adds Incrementum.
The silver investor will be entering a bombed-out market experiencing its final washout.
As was the case after the two most recent global depressions (1873-1896 and 1929-1947), a true golden age of activity, progress, manufacturing, construction, and real wealth lie on the other side of the present economic malaise.
“We expect industrial and decorative demand [for silver] to surge in this new golden age.”
Only investment demand has “performed admirably” since 2008.
Moreover, Incrementum expects silver investment demand to be a star performer during the current financial turmoil.

Robin Bromby
Robin has worked in journalism for 58 years, with 32 of those involving covering resource companies. Previously a reporter for The Australian, Robin has authored countless newspaper columns on mining and oil juniors and has published many books about mining and investing.