I think the case for silver is stronger today than it was five years ago. When we compare today’s circumstances with the current price, silver looks better today. Of course, a 50-cent sell-off then is the equivalent of a $1.50 sell-off now. But a tripling in price then brought us to $13 to $15, now triple brings us to $40 or $45.
I view silver as primarily an industrial commodity, strategic and vital to the modern world. Despite inevitable hiccups along the way, the juggernaut of world economic growth will continue. The primal desire to improve one’s standard of living can’t be suppressed. Throw hundreds of million of new-world citizens into the mix, and the case for world economic growth became even stronger. This requires increased consumption of all natural resources, including silver.
Looking back over the past five years, the idea that world economic growth would lead to increased consumption of natural resources seems an elementary conclusion. But it was not a universal expectation. It is easy to forget that, all along the way, many were expecting a world economic slowdown or recession. That is still the case today, particularly in light of well-publicized troubles in the housing and mortgage markets. In spite of such troubles, we are experiencing record high prices and consumption rates in a number of commodities, including the most important of them all, crude oil.
The high prices for natural resources in the past five years has been brought about, not by supply disruptions, but by unrelenting demand. This is particularly true in the developing BRIC countries (Brazil, Russia, India and China). This was something new. Previous commodity price spikes revolved around supply disruptions, wars, embargoes, weather shocks, etc. These days, industry-wide demand has propelled commodity prices, especially in metals and minerals.
I am hard-pressed to think of an industrial metal or mineral that has not established an all-time price high in the past five years. Strong and persistent demand, accompanied by declining or low inventories and restrained (but growing) consuming production are responsible. However, I can think of one glaring exception to the new record highs – silver. While nearly all industrial metals and minerals have established new record-high price levels in the past 5 years (petroleum and natural gas, uranium, copper, nickel, lead, zinc, etc.), silver is still less than a third of its price peak from thirty years ago. Even gold, not considered an industrial metal, has approached its all-time price high. What’s with silver?
Silver will be the best and last mover of them all once it gets rolling.

STILL UNDERPRICED
The doubling and tripling in the price of silver over the past few years hasn’t caused it to become over-valued, based on current fundamentals and circumstances. Although silver has appreciated as much as any precious metal, it has greatly lagged the price performance of the base metals. The GFMS base metals index is up almost 5-fold over the past five years, almost doubling silver’s price performance. This suggests silver is still undervalued.
Industrial demand for base metals is determined by the level of world economic activity. It’s impossible for there to be strong world demand for just one base metal and not for all the others. Nor could there be demand for base metals and not an industrial metal like silver. If the world is demanding more zinc and copper and lead, it is also demanding, and consuming, more silver.
The price peaks for base metals were made under shortage conditions. This included delayed deliveries and the existence of backwardization, where near term spot supplies commanded notable premiums to more deferred delivery. We’ve even experienced contract delivery defaults (in LME nickel). All this presages the coming shortage in silver. I predict that, at some point, silver will enter a true shortage condition because of strong industrial demand.