A Brief History of Silver
Silver has captivated humanity since 4000 BC. Beyond being used in jewelry and as a monetary metal, it has a multifaceted role in various industries, from technology, and medicine to even renewables, as it’s used in the photovoltaic cells of solar panels.
Silver wasn't always a junior partner to gold in bimetal systems – it was the original "standard" monetary metal dating back to Sumerian times, and even more valuable than gold in pre-Opium War China. Adding to its historical importance, the French word for money, "argent," literally means silver.
It’s also worth noting that in the 19th century United States, there was a strong and controversial movement called “Free Silver” that favored expanding the money supply by allowing on-demand silver coinage. It had populist roots because the perception at the time was that a strict gold standard policy in the U.S. only served the interests of the wealthy Northeastern establishment class who had accumulated gold over generations.
Silver’s Use in Modern Times
Today, silver's applications are diverse. Here are some of the primary contemporary uses of silver:
- Conduction: Silver is the best conductor of electricity among all metals, making it indispensable to the electronics industry.
- Energy: Photovoltaic cells in solar panels use silver paste, which enhances the efficiency of converting sunlight into energy.
- Healthcare: Silver has potent antibacterial properties so it’s used to prevent infections, dress wounds, and even to coat medical devices.
- Clothing: Silver is sometimes interwoven with fabrics to help the wearer benefit from its antibacterial properties and to prevent bad odors.
- Money: Bullion coins and bars, often minted from pure silver, are bought by investors because, alongside gold, it acts as a hedge against inflation.
- Jewelry: It is highly reflective and malleable for jewelry-making, and is much more affordable than gold.
Silver as Money
Like gold, silver is considered money because it possesses the five key properties that define true money. However, it’s important to note that on virtually every criterion its case is not as strong as gold.
Store of Value: Silver can retain its purchasing power over long periods. However, it is weaker than gold here particularly due to the potential volatility of demands in the industrial sector.
- Durability: Silver is a noble metal, and therefore highly resistant to corrosion. However, silver is also softer than gold and prone to tarnishing, so it is usually mixed with other metals whenever it’s used as currency for exchange.
- Divisibility: Silver can be divided into smaller units without losing its value.
- Portability: Silver has a high value relative to its weight and size, albeit not as valuable as gold (see ‘Gold-Silver Ratio’), making it easy to transport.
- Scarcity: The total amount of silver in the world is limited, preventing debasement.
- Fungibility: One ounce of silver gold is equivalent to any other ounce of pure silver.
Many argue that throughout history, only gold and silver have possessed these necessary characteristics of money.
The Gold-Silver Ratio
The gold-silver ratio is simply the price relationship between gold and silver. It is an extremely important concept. Firstly, it’s the oldest exchange rate in history. Their prices are strongly correlated and only rarely deviate from each other.
In recent times, the gold-silver ratio has been in the environs of 80 times the amount of silver needed to buy the same amount of gold, i.e., 80:1. However, many investors believe that this is due to price manipulation by some bad actors in the metals markets and that the true gold-silver ratio should be closer to 15:1.