Four Reasons Why Silver Shines in Good and Bad Economic Times


One of the few investments that performs well in good and bad economies, silver is a rarity in today’s investing world. Here are the four top reasons silver has consistent performance.

Silver is a Base Metal

Silver is a base metal, meaning it is a primary component in the production of many different products. From the wiring in your computer to its use in developing film and photographs, silver is used up each and every day, limiting the supply and helping to bolster the price per ounce.

In good economic times, manufacturing picks up, helping to increase demand. In recessions, silver still remains strong, helped by a consistent underlying demand from manufacturers.

Inflation is Always Present

Since the invention of the central bank, every single currency around the world has been inflated and lost value. While banks and treasuries around the world can fire up the printing presses, there is still no way to magically increase the amount of silver in supply.

Although short term deflation occurs during deep economic slumps, short term deflation occurs, the solution for fixing the crisis has always been one of two things: more debt or expansion of the monetary base. Both debt and an increase in the price of money create inflationary environments, which change the ratio of currency to the amount of silver. This only increases the price of one ounce of silver, as well as the wealth of precious metal investors.

Velocity of Money

The velocity of money, or the rate at which money moves through the economy, is one of the largest factors in the pricing of everything from commodities to goods at the grocery store. When money is moving quickly through the economy, prices tend to become inflated, as market actors feel they have more money and greater access to money than they did previously.

The velocity of money is most important when coming out of a recession or depression. As mentioned above, the most common fix to a financial crisis, in the eyes of the central bank, is to expand the monetary base. In doing this, the quick infusion of cash creates economic activity, which in turn, gets the wheels of the economy turning again. This is when precious metals are best poised for a strong rally, as the change in the supply and speed of money pushes the prices for everything much higher.

Silver’s Intrinsic Value

Even in the most deflationary of climates, precious metals tend to hold their value quite well. Because metals are seen as a store of value, investors flock to metals in the worst of economic times, hoping to protect themselves from total loss in case of a catastrophic event. While stocks dipped by nearly 50% in one year during the 2008 crisis, precious metals dipped less than 20% for one month – only to rebound in price as stocks were still falling.

Having been used as currency for thousands of years, precious metals are still a store of wealth, as well as a medium of exchange. This can only help investors in both the worst and best of economic times.

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