When considering physical precious metal asset-based investments, investors sometimes home in on gold — but another precious metal option can also potentially offer positive returns, according to Kevin DeMeritt, founder and chairman of Los Angeles-based gold
and precious metals firm Lear Capital.
Gold’s generally steady price performance can be a strong selling point for investing in it. Over the past two decades, the precious metal’s value has primarily increased.
“Gold has an inverse relationship to stocks and other types of assets,” Kevin DeMeritt says. “The volatility of gold is not going to be the same as other investments. It’s typically going to give you more stability.”
Compared to investing solely in the stock market — which, when factoring in inflation, has provided an average return of approximately 7% — including physical gold asset-based investments may help boost a portfolio’s potential.
“It’s a great diversification tool,” Kevin DeMeritt says. “Gold has outperformed the stock market since 2000. If you would’ve placed $100,000 in stocks [starting in 2000],
that would be worth about $325,000 today. If you would’ve placed 80% of that in stocks [and]
20% in gold, that’s worth about $385,000 today. You picked up an extra $60,000.”
Similarly, another precious metal — silver — can be a beneficial investment. Much like gold, silver has historically drawn investor interest and shown solid price performance.
In past decades, silver prices have generally risen — sometimes, even surpassing gold’s increase. In 1980, for instance, despite the U.S. experiencing a difficult inflationary period at the time, gold’s price rose 147%, according to a Lear Capital analysis; during the same time, silver’s price soared 557%.
Silver’s Unique Advantage
Due to current economic conditions, silver may actually offer an interesting value proposition at the moment.
A still-growing need for silver has contributed to its escalating value. Unlike paper currency that can be printed indefinitely, a factor that can reduce its value, silver is only available in limited quantities.
The demand for it, however, has increased in recent years — making the current supply even more coveted.
Silver has traditionally played a key role in a number of technological and other processes. Silver-based film, for instance, was once part of the standard method of taking photographs, although its utilization has largely fallen by the wayside due to the prevalence of high-resolution digital cameras.
“It was used in photography,” Kevin DeMeritt says. “But as soon as [cellphones with cameras] came out and you could take a picture [with that], you obviously didn’t need to get a physical photo.”
As of 2019, the majority of silver applications in the U.S. — 30% — were electrical or electronic applications, according to the U.S.G.S. 2020 Mineral Commodity Summaries guide.
The precious metal, for example, is a critical component in some sustainability-based products, such as solar panels.
According to the Silver Institute, a nonprofit association that provides information about the silver industry, solar silver-based photovoltaic power use — involving the conversion of sunlight to electricity — is currently the top source of green electricity.
Americans have shown a continued interest in clean energy and reducing fossil fuel use; the majority want the United States to focus on developing renewable energy sources, such as wind and solar power, to become carbon-neutral by 2050, a Pew Research Center survey found.
As a result, the demand for silver, a key component in those systems, will likely continue to escalate, potentially making it an even more valuable asset.
“You really can’t have solar without some silver in those panels,” Kevin DeMeritt says. “Because there’s this drive for green energy around the world, solar has grown, and so has the demand for silver.”
Buoyed by higher post-COVID-19 pandemic industrial production, strong consumer interest in electronics, investment in 5G infrastructure, and other elements, the demand for silver rose 19% between 2020 and 2021, according to Silver Institute data. During that time frame, all utilization categories of demand for the precious metal increased.
Incorporating Silver in Investment Plans
Investment conversations, Kevin DeMeritt says, may sometimes center more on gold than silver simply because gold has such a storied history of being used as currency.
“Throughout 5,000 years’ worth of history, gold has been some form of money,” the Lear Capital founder says. “And today, central banks don’t hold silver, they hold gold. So gold just gets more attention from that aspect. But the advantages of silver today, from our perspective, are starting to outweigh gold.”
Silver’s many applications have helped position it for future growth.
“Gold’s really not an industrial asset,” Kevin DeMeritt says. “It is used for some electronics, but silver is growing as an industrial asset, especially with the green movement. So you get the batteries that have silver in it, the solar that has silver in it; the industrial uses are just going through the roof — and you also have demand from other countries that are looking now past gold and starting to look at silver, as well.”
In the current economic climate — where, as The Wall Street Journal reported in early January, two-thirds of the economists from more than 20 large financial institutions that work with the Federal Reserve predict the U.S. will enter into a recession in 2023 — determining what to invest in can be a daunting prospect.
Silver’s past performance record may make it a particularly valuable portfolio addition in today’s economic climate, where investors could benefit from diversifying their investments to offset any losses from the stock market volatility we’ve seen lately, according to Kevin DeMeritt.
“You have the industrial side of the market that’s starting to increase, and then you have the investment side of the market that’s also starting to look very, very good,” DeMeritt says. “The last time we had a recession, the price of silver went up about 350%, [and] hit $47 an ounce. We trade at around $22 today, and we know that it can get up to $47.”
By this time next year, silver may no longer be the well-kept investment secret that it is today.
“If we know there’s a recession coming next year, then the investment demand would start to pick up — and we’re starting to see that,” Lear Capital’s Kevin DeMeritt says. “Silver was up about 20% in recent months, and that’s because of the investment demand. Silver will start to pick up and get more of the headlines throughout next year as we go into a recession.”