Although gold and silver are not by nature money, money is by nature gold and silver.
– Karl Marx
Investors looking for news stories to add to their holiday cheer after an almost 18% rise in the S&P 500 for 2025 would likely have been disappointed. Many of the major financial publications either ignored the market’s accomplishment or offered words of caution rather than optimism. Barrons headlined its story about the 2025 market “The Market Was Calm to End 2025. January Will Bring a Rude Awakening.” True, 15 of the 30 different indices S&P Dow Jones uses to track the U.S. market were negative for the month. Particularly interesting was the resumption in the year’s final quarter of the outperformance of foreign developed market equities with their outperforming the S&P 500 6.1% versus 2.7% and 35.5% versus 17.9% for the year.
Gold’s performance over the past several years has drawn the interest of investors, but it is silver’s return of 144.7% this year that has made it possibly this year’s most interesting story. Those of an age to receive social security benefits may recall Nelson “Bunker” Hunts efforts to corner the silver market in the late 1970’s; a scheme which foundered on “Silver Thursday”, March 27, 1980, with the price of the metal falling from over $50 to under $11 an ounce. Over the succeeding decades silver languished between $4 and $10 an ounce though experiencing two significant increases in more recent times, one after the Global Financial Crisis of 2007-2009, the second after the 2020 pandemic.
Silver’s story is as old as civilization itself but ironically it may be the one of our most recent creations that is the most dependent upon it. Silverware and jewelry represent 10% of global demand and its use as a monetary asset an additional 18%. Within the remaining 72% resides the foundation of our current technology-based civilization. Photovoltaic cells for solar panels. Batteries for electric vehicles. Semiconductors. It is fundamental to 5G cellular networks, data centers and the Internet of Things. It is also a key component in medical technology because of its antimicrobial properties. And it is without a viable alternative.
The majority of global silver production comes from countries considered friendly to the interests of our own but silver, as mined, is unusable and must be refined; a process that has significant consequences for the environment; a consequence of which is that 60% to 70% of global refining occurs in China placing that country in a position to limit global supply. For the past five years global demand has exceeded supply resulting in a drawdown in global inventories with that of the COMEX having declined by 70% since 2020. The result is the divergence in prices set by the futures markets (the “paper market”) of $30-$35/ounce and that of the real physical market of $80.
Evidence of the financialization of our world is that the size of the paper market for silver is 356 times larger than its physical market. The variance in the pricing of the two markets though is increasingly not only caused by the current imbalance between supply and demand but a declining level of confidence in the ability of the paper market to make good upon its contractual obligations to deliver the physical metal. The larger story though may be the possibility that what we are experiencing is the dawn of awareness that the promises of this specific market are no longer credible and the increasing level of concern that there may be other markets harboring similar risks.
50/50 portfolios returned 1.6% for the month, 3.6% for the quarter and both the portfolio and equities returning 19.25% for the year. Fixed income returned 8.6% for the year with variable rate securities and precious metals both making notable contributions.
Mark H. Tekamp