As a physical asset, it has an intrinsic value, unlike the dollar or other currencies. Silver maintains its value over the long term and does well when interest rates are low and investments in fixed income do not generate large profits. In this way, silver works like gold as an investment and performs a similar function as a safe haven. As a perennial form of money, silver has long been adopted and accepted as viable money in a free market precisely because silver embodies the universal characteristics of money.
Silver coins are durable, relatively scarce, universally accepted, fungible, portable and cannot be degraded and are therefore suitable as a medium of exchange and unit of account. Physical silver has intrinsic value and has no counterparty risk and risk of default. Silver also retains its purchasing power for long periods of time, as does gold, making it suitable as a store of value and as a long-term hedge against inflation. In addition, the more physical assets, including silver jewelry, in your home, the greater the risk of theft.
Even investments in physically backed silver ETFs, such as the well-known iShares Silver Trust (SLV), do not allow holders to receive the underlying silver. There are many reasons to buy silver, including the fact that silver is money, a form of savings and a form of investment at the same time. Market participants can buy ingots in different ways, such as silver coins or silver jewelry, or they can buy silver ingots. Interest in the silver market tends to grow every time the price of silver increases, and investors are starting to wonder if the time is right to add physical silver to their investment portfolios.
This, together with very small warehouse inventories and even smaller physical deliveries, suggests that trading silver futures on COMEX is predominantly a speculative activity of paper trading. As can be seen in the diagram above, there is 46% of physical gold in jewelry, 17% of gold is stored by central banks, and almost a quarter of all gold reserves are still underground. There are different ways to save or invest in silver, such as owning physical silver ingots and coins, investing in silver mining stocks, investing in physically backed exchange-traded funds (ETFs), speculating on silver futures and betting with spreads, and investing in synthetic products leveraged at the price of silver. Many analysts use the gold-silver ratio as a temporary indicator to help make the decision whether it might be a relatively better time to buy silver compared to gold.
Therefore, there is a big disconnect between trading silver futures, which influences the price of silver, and trading real physical silver. In my opinion, this is because Canadian banks froze several accounts related to people suspected of having participated in illegal protests, by order of the government. That means that if you want to buy silver in the form of a coin to use as a currency, it will be easier to break than a gold coin because it has a lower value. Grams of BSP silver can be converted into physical ingots, produced by LBMA refineries, at any time at no additional cost.
If one of the reasons you buy silver is to protect yourself against systemic financial risk, it makes sense to have physical silver ingots and coins. Therefore, it can be concluded that the London silver market is predominantly a fractional reserve system with little support in the form of physical silver.