Silver
A Brief introduction:-
Silver is one of two precious metals that have an extremely long history of being used as either money or the basis of money - even in the United States the currency (the US Dollar) used to be Silver Certificates, redeemable in actual Silver, until Nixon turned it into a Fiat currency (i.e. having no underlying value other than what the State says its worth).
Whilst in ancient times Gold was the money of the royality and the treasury, the money of the people has tended to be Silver - this can be illustrated by the fact most ancient currency/coinage was minted out of Silver and the fact that in 14 languages the word "money" is the same word for "silver". Many such Silver coins long outlived the "states" that produced them as they had value in the underlying metal - i.e. Silver. So an Athenian minted coin and a Persian minted coin could and were still being used in the times of the Roman empire. Likewise Roman coins continued to be used long after the fall of the Rome and I know Spanish pieces of eight were even being used in Auckland, New Zealand in the mid 1800's! In comparsion a Fiat currency only has value as long as people trust in the government - modern examples of Fiat currencies becoming subject to hyperinflation include Zimbabwe and Argentina. History teaches us Fiat currencies have a limited life span and eventually every government that runs a Fiat currency runs greater and greater debts with an ever increasing bureaucracy and attempts to spend itself out of trouble by printing more money - the temptation has just always proved too great and eventually hyperinflation sets in the the currency is worthless throwing most of the population into poverty. In contrast Money based on metals have a proven history of outlasting the empires that minted them.
Of the two Gold is the rarer metal, hence its greater value, but the current ratio of Gold value versus Silver has not always been the historical case. In fact for most of its history Silver versus the same mass of Gold traded between 1/6 and 1/12 the value of the same weight in Gold. This changed with the discovery of the new world. Not only did the Spanish take vast amounts of Gold from the Aztecs, Inca's and others they also found huge reserves of Silver in the New World, including in Mexico, Peru and the United States. Many a native, prisoner and others have died in the Silver mines of the new world to extract this vaulable metal. Peru even today is still the largest supplier of mined Silver to the world market. So much Silver was mined that it depressed its price. Currently as of 20 July 09 a troy ounce of Gold will cost about $941 USD and Silver will cost $13.50 (Spot price). Or a ratio of about 1 to 70. As you can see the value of Silver has declined significantly over the last 500 years. As with any resource its value can be volatile and change in price - Silver recently this year had a low of about $9 USD down from a high in March 2008 of $21.34. One of the recent factors to cause a decline in demand is the change in how we take photographs. Previously photo paper both colour and black & white required Silver - the move to digital had an effect of dropping industrial use of Silver by about 30%.
Why then are people starting to get excited about silver? The main reason is because unlike Gold which tends to be recycled again and again, Silver is CONSUMED. Silver is used in alot of industrial processes because it has a number of excellent properties. These include having a very high lustre and reflectivity (polish) , its very ductile and malleable, also having the highest thermal conductivity as well as the highest electrical conductivity of any metal. Silver also has antimicrobial qualities and has increasing uses in medicine - even gaining greater importance if the trend of the declining effectiveness of antibiotics continues. Silver is used as a Catalyst, in nuclear reactors (because it absorbs free neutrons), mirrors and optics, dentistry, electronics, and of course in jewelry and coinage. Many of these applications use Silver in an alloy and the Silver is often CONSUMED - not available for recycle. The means industry constantly requires more Silver to be produced (mined) to meet demand. Many believe that future demand will exceed production meaning the price will go up and up. As this happens it is likely the new ways of recyling the metal which come into play, however the chances of finding another ''new world'' discovery is pretty low considering most of the world has been explored.
I personally believe (and note I am NOT a financial advisor) that the United States dollar with its ongoing deficits both in trade and government budgets will see hyperinflation set in. If the Chinese wake up to themselves and stop buying worthless US treasury bonds and instead start buying up Silver then the price of Silver could increase hugely. The last time Silver shot up in value was when the HUNT brothers tried to corner the Silver market and it when up to nearly $50 USD an ounce. The Chinese have traditionally valued Silver and required that the British and other pay for Chinese goods in Silver. The British could not afford that drain on their empires economy and so smuggled opium into China to restore a trade balance - hence the Opium Wars and China's continued suspicion of foreigners.
Worse case scenario if Silver doesn't shoot up in value, it should still hold its value as a store of wealth against inflation - i.e. as the value of the dollar lessens over time (an just think what a dollar could buy in fuel ten years ago to what it can buy now), the price of Silver will automatically increase.
