Dare to Diversify: The Compelling Case for Long Term Silver and a Side of Pop
Bunker Hunt was a Texas oil tycoon with a larger-than-life persona and an ambition to match. Bunker, along with his brother Herbert, attempted what no one else dared: they set out to corner the global silver market.
Born in 1926 into a wealthy oil family, Bunker was no stranger to riches or the risks of big ventures. Despite his wealth, Hunt’s lifestyle was far from flamboyant; he was known for his simple attire and conservative lifestyle, preferring a good bargain over lavish spending, although he owned a stable of thoroughbred racehorses, reflecting his passion for horse racing.
In the late 1970s, amid soaring inflation and a distrust in paper money, Bunker Hunt saw an opportunity in silver, a metal he believed was undervalued and an excellent hedge against inflation. The Hunts began accumulating silver in a massive scale in 1973, and by 1979, they along with a group of Middle Eastern investors, controlled a sizable portion of the world’s silver supply. By 1980, their actions had driven the price from around $6 per ounce to an astonishing peak of $50 per ounce.
On March 27, 1980 (now known as Silver Thursday), the market realized that the Hunt brothers could no longer cover margin calls to sustain their positions. Panic ensued, and the price of silver collapsed, plummeting by over 50% in just four days. The Hunts faced a colossal $1.7 billion loss and charges of market manipulation. Bunker Hunt’s empire crumbled, and he eventually declared bankruptcy.
Bunker Hunt’s audacious venture into silver reminds us of the metal’s enduring allure and potential for dramatic pops in price. An echo of Bunker Hunt’s silver venture occurred in the 2021 silver squeeze driven by retail investors.
One reason retail investors can have a more profound impact on silver is because the silver market is much smaller in value compared to the gold market. This smaller size means that inflows of investment into silver can have a more pronounced effect on its price, leading to larger percentage gains during market uptrends.
For instance, during the precious metals bull market from 2008 to 2011, silver significantly outperformed gold. Silver rose from around $9 an ounce to nearly $49 at its peak in 2011, an increase of over 440%, while gold rose from around $800 to $1,900, an increase of approximately 137.5% during that same span.
Incorporating Silver into Your Portfolio: A Strategic Shift
As a long-time advocate for gold, I have often highlighted its steadfast value and protective qualities. However, it is time to shed light on its exciting cousin, silver, which presents a unique blend of attractive supply/demand dynamics that support an upward lift in prices, with the aforementioned “free option” on dramatic gains.
The Industrial Powerhouse: Demand and Projections
In 2023, industrial silver demand reached a new record high of 654mm ounces, driven by structural gains in clean energy technologies, particularly in the photovoltaic sector. This represents 55% of demand, up from 46% in 2022. Industrial demand is predicted to grow another 9% in 2024. Silver’s unique properties make it nearly impossible to substitute, and its uses span a wide range of electronic, solar energy, and medical technology uses. Silver even plays a role in the fast-growing artificial intelligence business, being a core mineral in the massive data centers needed to service the AI databases.
Challenges in Supply: The Deteriorating Mine Output
On the supply side, the picture is quite different. Silver mine production has been facing challenges, with global output in decline. After peaking in the mid-2010s, silver production has seen a gradual decrease, with major silver-producing countries reporting lower outputs due to aging mines and fewer new discoveries. In 2023, there was a deficit of ~200mm ounces of silver supply compared to demand.
The Speculative Potential: A Catalyst for Outsized Returns
The current silver price dynamic is driven by solid demand and tightening supply and suggests strong potential for long-term price appreciation (and giving investors a derivative exposure to tech and renewable energy sectors). On top of this attractive dynamic sits a complex market of speculators, who, like the Hunts or the silver squeezers, can quickly dive into the market and create a jump in the price and outsized returns. To be clear, I am not advocating silver as speculation, just noting that a speculative wave could magnify returns significantly.
Conclusion: A Dual-Value Proposition
Incorporating silver into your portfolio offers a dual-value proposition: stable appreciation driven by solid fundamentals, and the exciting possibility of speculative gains. As we navigate these times of technological advancement and economic shifts, silver stands out not just as a precious monetary metal, but as a strategic asset that reflects the broader economic and technological trends shaping our world.
Warm regards,
Steven Feldman
CEO, Hard Asset Alliance
