By Matt Carr
"I bought it very early, I sold it very early. Other than that, it was perfect."
That was Warren Buffett in 2006, admitting to a gaffe on his part. In 1997, Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) purchased 129,710,000 ounces of silver for delivery in early 1998 at roughly $680 million.
Silver was cheap. But the price rose quickly – from $4.00 to $7.81 – before falling back down just as quickly.
The "Oracle of Omaha" made a costly mistake though. He liquidated his position shortly after buying in. If Buffett had held on to that massive silver position, it’d be worth close to $5 billion today. (Ouch.)
Well, at least Buffett can still say he was right. He correctly predicted that silver was going higher. And those silver prices of the late 1990s have since been blown away. Silver screamed past $10 and $20 per ounce in the 2000s. And this morning, investors watched as silver jumped above $41 per ounce (more than 10 times the price Buffett paid in 1997).
Gold’s "Ugly Sister" Getting More Attractive
With silver currently trading around $41.17, the "psychological" $40 barrier is now in the rearview mirror. But even after hitting 30-year highs, silver is continually overshadowed by gold.
Well, our long-time friend Chris Weber of Weber Global Opportunities Report thinks that’s about to change. He believes $40 silver isn’t even the story here. Nor is $100 silver. He says silver will hit that mark … and go soaring right on past to new, unheard of heights.
"I still have a target for silver to reach the $187 level," Weber said. "I’ve had this for nearly a decade now. There’ll be corrections at some point – we’re actually overdue for one. But I think silver will be the best investment of this era."
On the surface, that appears to be a bold statement. But the reality is that silver is already outpacing gold. Since it’s January 2000 average, silver has shot up 690%, while gold is up 421%. Looking at the shorter term, since July 2010, silver is on a major bull run, doubling in price. Gold, on the other hand, is up just 24%.
So what’s happening here? Why is silver outperforming gold?
Well, fundamentally, the silver market is different from that of gold. Silver is more than just a precious metal for jewelry, fine dining utensils, and other such consumables, or even as a safe haven investment. Silver is practical. And new applications for solar batteries, water purification, cellphones, circuit boards, plasma TVs and radio frequency identification devices (RFIDs) are helping to ignite silver’s demand.
In fact, 40% of silver demand is now driven by industrial uses, compared to just 11% for gold.
"Silver is still an excellent conductor of electricity," stated Weber. "So however that electricity is generated, silver will always be sought after by industry."
And this is what will separate silver from gold in the future.
Global Industrial Demand for Silver Rises Exponentially
By 2015, it’s estimated that global industrial demand for silver will increase 36%, from 487 million ounces in 2010 to 666 million ounces. Most of that increase will be for electrical contacts and photovoltaic (PV) solar cells. This is very big, even though PV cells use only 0.15 to 0.25 grams of silver each. In 2004, the solar industry consumed just three million ounces of silver. That increased to 50 million by 2010. And solar’s demand for silver will top 100 million ounces by 2015.
Globally, solar energy demand is expected to double in just the next three years. India alone is dropping $19 billion to add 20 gigawatts of new solar power by 2020. This year, India’s silver exports are expected to increase 25%, not only for solar, but also a wide range of uses.
But PV cells are exotic. The real sneaky consumer of silver is cell phones. Each one contains a mere 250 milligrams of silver. Now extrapolate that out among the 1.6 billion cellphones sold last year.
And the real key here is, because silver is such a great conductor of electricity, there are no low-cost alternatives. End users can’t simply switch to something else when supply gets tight and prices get high.
The Last Piece of the Puzzle
All this new industrial demand is helping put some wind in silver’s sails. But there’s another piece of the puzzle: exchange-traded funds (ETFs).
With the advent of ETFs, precious metals became more attainable for the average investor seeking a safe haven or inflation hedge. Now, almost 30% of the silver produced is purchased by ETFs. And these silver ETFs are gobbling up half of all deliverable physical bars.
All of this is something we can’t afford to ignore … even if the rest of the market does.
"Gold is deeply embedded in the mind of man," Weber said. "Silver is quieter. If the Dow had risen 800% the way silver has in the past decade, we’d all be hearing about it. Same with real estate or technology."
He added, "But the fact that most people don’t even have silver on their radar screen is a bullish thing. However, this neglect won’t last forever."
Buffett was right on his silver speculation in the 1990s. He just pulled the trigger too early. Weber’s instincts have been in line with Buffett’s. Silver won’t likely hit $187 in the next year. But the precious metal has far more upside than gold. It’s not a safe haven. Silver is an industrial necessity.