Silver – Crisis Insurance

Most businesses purchase various types of insurance (public liability / professional indemnity / cyber liability) to cover themselves in the scenario where an adverse event causes direct financial losses.

Our own view here is that investors should take a similar approach to mitigate the risks of such adverse impacts to one’s portfolio. In this case we are referring to the event that a major financial crisis unfolds, not unlike the most recent one in 2007/08.

Of course, whilst the chances of a business suffering a cyber attack are remote/possible, we are almost guaranteed to have a credit collapse in the near term.

Should things get so bad, (think depression era loss of employment, bank bail ins, frozen accounts) holding physical silver should be seen as a bridge to recovery. Like gold, there is no counter party risk, and holding specie sovereignty. Specie, gold and silver coins, represents actual money.

Should a bank suffer a bank run or be temporarily ‘locked up’ for one reason or another a small silver holding could be essential to ensure flexibility.

Of course, a small tactical holding can also be useful in the era of blackouts. Spain recently suffered major electrical blackouts as widely reported due to their ill advised transition to the less reliable greener grid. Citizens were unable to access bank accounts.

There are also distinct benefits to holding silver instead of gold.

• Silver is historically undervalued compared to gold. The gold silver ratio has been hovering around 100x for some time now i.e. one ounce of gold can buy 100 ounces of silver.
• The metal is small enough so as a reasonable stash can be held without fear of loss or theft.
• Given the lower values compared to gold/platinum it can be easily exchanged for day to day or other incidental needs, medicine/batteries/fuel).

Whilst we recommend a large portion of silver is held via paper (ETF’s / ETC’s), ultimately these are reliant on third parties, and these capital sums represent the main strategy. Paper silver is fine for investment exposure, but physical is necessary as a backup. Ideally it is best to have a separate back up to provide the ultimate comfort.

So the benefits of holding say 25 ounces provides flexibility. Knowing that you hold real money in times of crisis. It would also put an investor with a contrarian but focused edge well into the top 1% of physical holders.

This is not to mention that governments have outlawed precious ownership in the past. The US government through the auspices of the Gold Reserve Act of 1934 effectively banned the outright holding of gold. So holding large quantities of gold in a bank (save for somewhere like Switzerland) means one could be open to easy confiscation from a rapacious government desperate for revenue.

As they say, history doesn’t repeat but it often rhymes.

It is not beyond the realms of possibility given spending in the Western world grows uncontrollably, and if nothing else, the white metal will prove a better inflation hedge than holding dollars, Euros or Sterling.   

So the takeaway is clear – get that crash proof insurance.

A small, portable 25 ounces is a good short term goal. In the long run, an individual holding 100 ounces feels like a robust position to mitigate the impacts of the next inevitable bust that is due.