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In this week’s Money Metals Midweek Memo, host Mike Maharrey provides insightful commentary on the state of precious metals, the economy, and the importance of sound money in times of uncertainty. 

As a hurricane threatens his Florida home, Mike emphasizes the critical need for physical money during natural disasters when power and internet access may be unavailable.

Running Length: 00:28:49

The Case for Physical Money

In the aftermath of previous hurricanes, Mike highlights that digital currencies, like Bitcoin, although valuable, are impractical without electricity and internet access. While cash can provide short-term solutions, Mike advocates for holding physical silver and gold, which historically served as reliable money.

"You really need to have physical money… if there's no power and no internet. I love Bitcoin, but try to use your Bitcoin if you’ve got no electricity and no internet."

Mike went on to say, "Ideally, you would have physical money—you would have silver, you would have gold... silver especially works well as a means of transacting business."

He mentions pre-1965 silver coins, commonly called “junk silver,” as practical tools for bartering. For instance, a silver quarter today is valued at around $5.35, making smaller silver denominations useful for transactions. 

Additionally, gold products like Goldbacks—ultra-thin gold notes laminated for durability—are also becoming popular, allowing small denominations of gold to be traded easily.

Silver’s Bull Run and Correction

Silver continues its strong performance despite a recent $1 correction, with prices still holding above $30 per ounce. While some investors feel silver has underperformed compared to gold during this bull market, Mike points out that silver’s growth in percentage terms has mirrored gold’s rise. 

Despite being $20 below its all-time high, silver remains well-positioned for further growth, particularly as the market dynamics suggest more upside.

Silver Supply Deficit and Industrial Demand

One of the key factors driving silver’s potential for growth is its supply-demand imbalance. For the past three years, silver demand has outstripped supply, creating structural deficits. In 2023, the silver market faced a deficit of 184.3 million ounces. 

For 2024, the Silver Institute projects a deficit of 215 million ounces, which would be the second-largest deficit on record.

Industrial demand is a major contributor to this deficit. Sectors like solar energy and electronics, including the growth of AI technologies that rely heavily on silver for computer chips, are driving the surge in consumption. 

Despite these growing needs, mine production has lagged, peaking in 2016 at 9.1 million ounces and falling since. In 2023, mine production is projected to be 62.8 million ounces lower than the peak, reflecting a 7% decline.

Challenges in Silver Mining

Silver mining is notoriously slow to react to rising prices due to its inelastic nature, meaning production cannot ramp up quickly. Over 50% of silver is mined as a byproduct of base metals like copper, zinc, and lead, making silver prices less influential on production decisions.

Maharrey stated, "Silver mining is a very inelastic business... more than half of all silver is mined as a byproduct of base metal operations, so they’re not responding to silver price signals."

Moreover, primary silver mines are facing issues with declining ore grades (down 22%) and rising mining costs, leading many mining companies to struggle with negative free cash flow despite higher silver prices.

Russia’s Strategic Shift to Silver

In a surprising development, Russia plans to add silver to its state fund in 2025, alongside gold, platinum, and palladium. This marks the first time Russia will hold silver as part of its national reserves, a significant shift as countries traditionally focus on gold. 

"This would be the first time that Russia has ever held silver in its state fund... they’ve historically held gold, platinum, and palladium, but silver is a new twist in their precious metal strategy," Maharrey noted. 

Russia’s 51.5 billion ruble allocation for precious metals and gemstones represents a 32% increase from previous budgets. This move is seen as part of Russia’s strategy to hedge against economic sanctions and the weaponization of the U.S. dollar in the Swift banking system.

Silver’s Underpricing and Future Potential

Despite the growing demand and declining supply, silver remains underpriced relative to its fundamentals. The gold-silver ratio, currently around 80:1, suggests that silver is undervalued compared to gold. 

Historically, this ratio has hovered between 50:1 and 60:1, indicating that silver prices could see a sharp rise as the market corrects. 

Mike believes that with silver still priced around $30 to $31 per ounce, investors have a great buying opportunity.

Mike speculated, "Silver appears to be underpriced… if things follow the trajectory we’ve seen in the past, we should expect the price of silver to rise rapidly and close the gap between itself and gold."

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