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Silver lining

Industry Top Trends 2021: Metals and Mining

Greenhouse gas and gold mines Nearly 1 ton of CO2 emitted per ounce of gold produced in 2019

Essential Metals & Mining Insights - September 2020

Essential Metals & Mining Insights - August 2020


Silver lining

Wehave it on good authority that "silver is a curious metal."

Onits website, Chicago-based Ghostly Activities advises: "Much like iron, weknow silver works well against paranormal and mystical beings, but we don'tknow why." Silver, apparently, has been known to drive away many types of "paranormalcritters and enchantments," including vampires, werewolves, boogeymen andwitches. It also keeps the undead at bay but, disappointingly, like iron,silver doesn't work against ghosts.

Silveris also regarded as the "devil's metal." Fortunately, this hasnothing to do with the metal itself but rather how it was traded in biblicaltimes. When Jesus overturned the money-changers tables, he was not angry at theconcept of money, or even reasonable profit, he was angry at the excess chargesfor the special silver coin that was needed to make temple offerings.

Moreprosaically, silver is closely associated with the elderly and those beateninto second place. The symbol for silver is Ag, from the Latin argentum,meaning grey, and the metal is certainly a senior citizen. Mentioned inGenesis, silver was first mined 2,000 years ago in what is now Turkey.

Thebiggest impetus to the extraction of silver came in 1492 with the arrival ofChristopher Columbus in the Americas. This ultimately led to a massive rise insilver production, and Bolivia, Peru and Mexico accounted for over 85% of worldoutput between 1500 and 1800.

Silverwas regularly in the news during the 1970s, when a Texas oilman, Nelson BunkerHunt, sought to corner the market. By 1979, it is estimated that he controlledone-third of the non-government-held silver, equivalent to some 100 millionounces. Primarily because of this aggressive activity, the price of silver hadrisen from US$11/oz in September 1979 to US$50/oz in January 1980.

Frightenedby the implications, the Chicago Board of Trade, Comex and the CommodityFutures Trading Commission implemented new rules at the start of 1980.Contracts were limited to 10 Moz per trader. Trading of silver was subsequentlysuspended, and only liquidation orders were accepted. Predictably, the price ofsilver halved inside four days, and Hunt eventually filed for bankruptcy inSeptember 1988.

Theprice of silver continued to deteriorate, and for most of the 1990s the metaltraded at around US$5/oz. Prices started to improve at the end of 2003,reaching over US$20/oz by February 2008. The financial crisis saw silver slumpto under US$10/oz by November 2008, before making a remarkable recovery to overUS$46/oz in March 2011. As with most other metals, silver subsequently fell,and was back below US$20/oz during the third quarter of 2014.

Despitethis volatile history, the metal hardly deserves the "runner up"connotation. Silver's astonishing properties include the highest thermalconductivity of any metal, and the highest electrical conductivity of anyelement.

As aresult, silver has numerous industrial applications, including as electricalcontacts and conductors, and in specialized mirrors and window coatings. Itscompounds are used in photographic film and X-rays, and dilute solutions ofsilver nitrate are used as disinfectants and microbiocides.

Themetal occurs naturally in its pure form as native silver, as an alloy with goldand other metals, and in minerals such as argentite and chlorargyrite. Mostsilver is produced as a by-product of the extraction of copper, gold, lead andzinc.

Theattraction of silver has come to the fore since the Brexit decision wasdelivered in the early hours of June 24. The white metal has outshone itssister precious metal since the U.K.'s decision to leave the European Union,rising 16% to US$20/oz, which is its highest level in two years.

Althoughgold has risen 8% to US$1,375/oz during the past two weeks, the gold:silverprice ratio is now below 70:1 for the first time in over a year. The ratio rosefrom 40:1 in mid-2011 to over 80:1 at the start of this year, with an historicaverage of 45:1. This leaves silver as the best performing major metal thisyear, up 45% in terms of the U.S. dollar and up almost two-thirds in terms ofthe U.K. currency.

Thereasons for this performance are not hard to find. Silver contracts trade onmuch smaller volumes than gold, so the price tends to be more volatile. Also,unlike gold, silver is widely used in an industrial capacity, and therefore inaddition to trading alongside gold as a hedge against risk, it trades alongsidemetals such as copper for its physical demand.

Silveris also seen as the poor man's gold, of course, and we are poorer since Brexit.It will come in particularly handy for boogeymen in the U.K.