TORONTO (miningweekly.com) – Silver miners should pay some thought to keeping some of their cash reserves in the metal, instead of selling it and putting the cash in the bank, Sprott Asset Management’s Eric Sprott and David Baker said in a note on Tuesday.
They argue that silver is undervalued, and will perform better than currencies as governments are forced into printing money to pay off ballooning debts.
“Given the current environment, we see much greater risk holding cash in a bank than we do in holding precious metals. And it serves to remember that thanks to 0% interest rates, banks don’t pay their customers to take on those risks today,” Sprott and Baker wrote.
Sprott has long criticised the debt levels of most banks as unsustainable, and encourages investors to keep at least some of their wealth in physical precious metals – especially silver – and outside of corporate banks.
Now he’s encouraging the producers of the metal to do the same.
“Instead of selling all their silver for cash and depositing that cash in a levered bank, silver miners should seriously consider storing a portion of their reserves in physical silver outside of the banking system,” he and Baker said.
They calculated that the silver market for 2011 would be worth $32-billion at today’s prices, or around one-billion ounces.
Assuming 700-million ounces of that went into industrial applications (slightly less than last year), that means around 300-million for the investment market – or around $9-billion’s worth.
“If the largest pure play silver producers simply adopted the practice of holding 25% of their 2011 cash reserves in physical silver, they would account for almost 10% of that,” said Sprott and Baker.
The argument is that removing this supply by holding silver ounces instead of cash could have a significant impact on prices for the metal, while at the same time storing it in a currency safer than those governments print.
“None of this should seem far-fetched. One of the key reasons investors have purchased physical gold and silver is to store some of their wealth outside of a financial system that looks increasingly broken,” the pundits wrote.