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GPF Physical Silver ETC

GPF Physical Silver

One of the lowest-priced physically backed Silver ETCs on the market today.

  • Total Expense Ratio of 0.2%

  • Physically backed with allocated silver in vaults

  • Ownership tracked with Distributed Ledger Technology

Investment Case for Silver

Applications

While silver is largely viewed as a precious metal the most recent World Silver Survey suggests that almost half of silver demand is used in industry. The most important of these is found within the electronics industry (30%), though silver’s use in photovoltaics (solar panels) is also growing rapidly (10%). Silver’s use in brazing and soldering alloys - used for joining pieces of metal - is also an important industrial use (5%). Although in decline, silver’s use in photography still accounts for 3% of demand.

Silver Survey data indicates that jewellery consumed some 20% of demand in 2019, while silverware accounted for a further 6%. Physical investment, mainly in the form of bars/ingots accounted for 19% of demand, while investment in physically-backed gold Exchange Traded Products (ETPs) accounted for a further 8% of demand.

The Investment that Glitters

Like gold, silver has a number of attractive qualities as an investment including:

• Provides diversification

• Preserves purchasing power

• Preserves wealth

• Relatively cheap vs. Gold

• It’s a liquid asset

• Highly accessible

• Is a play on Solar energy

• Is a play on 5G technologies

Most of these properties are well known and have been documented numerous times over the years. However, it is worth highlighting the diversification benefits of holding silver in a portfolio. Like gold, silver is considered a safe haven asset and over a 20-year period has exhibited a correlation of only 0.3 to equity and debt markets . With such a low correlation to equity and debt markets, even small allocations to silver provide meaningful improvements in the efficiency and risk characteristics of a 60/40 portfolio.

Many investors don’t like silver as an investment as it pays no income stream whilst incurring storage costs. However, today we also live in a world where cash pays little to no interest and government bond yields are low to negatively yielding which makes the argument against holding gold a lot less relevant. It is also worth noting that according to the IMF 2, pandemics typically depress real interest rates over multiple decades which again implies a favourable environment for investing in silver.

5G and Solar Energy Play

In addition to the qualities of a real asset and precious metal commodity, silver’s attractive physical and chemical properties are making it critical to the development and growth of the solar power market and 5G technologies. According to CRU Consulting, silver consumption by the solar industry is expected to remain elevated over the next decade and average approximately 80 million oz per year . Naturally, any increased drive to reduce environmental emissions, migrate towards green energy and/or move sooner to Carbon neutral economies will increase the demand for silver.

According to the Silver Institute, as 5G technologies are rolled out it will create incremental demand for chips, sensors, devices and any other semiconductor component of the ecosystem. Given, that the electronics industry is such an important market for Silver (~30%), it is expected that this 5G driven growth of the industry will increase demand for silver by approximately 23 million oz by 2030 .

Price History

Silver’s price has increased ~10x over the last 20 years by contrast the S&P 500 has only increased by approx. 2.5x during the same period. Looking at the chart below we can see that one of the steepest price increases for silver was the 3-year period right after the Great Financial Crisis of 2008. During this period the FED unleashed QE1 and QE2 to support the financial system and was followed swiftly by various other stimulative central bank and government policy actions across the world. The crisis of 2020 has equally rattled economies and has driven central banks and governments across the world to loosen monetary and fiscal policies to unprecedent levels. According to Reuters , governments and central banks pumped $15 Trillion of stimulus into their economies after the first wave of the pandemic. With the second wave upon us and restrictions and lockdowns increasing on businesses and consumers we can expect more stimulus which should be very bullish for real assets like silver.

Properties

Silver is a chemical element with the symbol Ag (from the Latin argentum - "shiny" or "white") and atomic number 47. It is a soft, white, lustrous metal, that exhibits the highest electrical and thermal conductivity of any metal and is the most reflective of natural light. The metal is approximately one-third more dense than iron, but has a much lower melting point. Silver is also highly malleable and ductile, though somewhat less so than gold and is also somewhat more chemically reactive. Nevertheless, silver, along with gold, platinum and palladium, is still considered a ‘noble’ metal.

Occurrence

While silver is more common than gold, its higher level of chemical reactivity means that natural above-ground sources of pure (native) silver are relatively rare and it is still considered a ‘precious metal’. Silver can be found as a natural alloy with gold (electrum), and in minerals such as argentite and chlorargyrite. Nevertheless, most silver is produced as a by-product of copper, gold, lead, and zinc refining and mines associated with these metals are often among the world’s biggest producers of silver.

According to the 2020 World Silver Survey, approximately 26,000 tonnes of silver was mined in 2019. The principal producing countries were Mexico (22.7%), Peru (16.2%) and China (13.2%), Australia (5.9%), Russia (5.1%), Poland (4.8%), Chile (4.6%), Bolivia (4.4%), Argentina (4.2%) and the United States (3.8%). Leading silver mining companies include Fresnillo, KGHM Polska, Glencore, Pan American Silver, Polymetal, Hindustan Zinc, Southern Copper and Buenaventura. However, global silver production remains relatively fragmented. 

History

Like gold, silver is among the ‘metals of antiquity’ and its history is thought to be almost as ancient. The first known uses of silver were as ornaments and jewellery and samples from Anatolia (in present-day Turkey) date back to at least 4000 BC. For much of silver’s history (c. 600 BC – 1935 AD), it was used as legal tender in coinage and was arguably integral to the world’s first global currency late in the 15th Century in the form of the Spanish silver dollar, or ‘pieces of eight’.  

Footnotes

1 - MSCI AC Equity and Global Aggregate

2 - “The Long Economic Hangover of Pandemics”, June 2020, Oscar Jorda, Sanjay Singh, Alan Taylor

3 - “Clean-car push puts palladium in the fast lane”, Henry Sanderson and Neil Hume, January 9 2020, FT

4 - “Hybrid Vehicle Market – Analysis of Growth, Trends, and Forecast (2020-2025)

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