Silver
We are pleased to introduce the first article under the EPIC banner by Jo Welman, about silver and its fascinating pricing dynamics.
Jo Welman had a career in the City spanning 45 years and worked in a wide variety of financial sectors. Although now retired, Jo continues to chair an insurance company’s asset allocation and capital management process and provides corporate finance and investment advice to entrepreneurs and private investors. He keeps a sharp eye on the financial markets and his commentary is always insightful as well as entertaining.
Jo is also a passionate believer in youth financial education. He has chosen not to receive any remuneration for his EPIC commentary and instead we are pleased to promote the latest edition of his book “Feet up by the pool”.
Profits from sales of the book go to The Money Charity, a charity that shares Jo’s objective to help fill in some of the worrying gaps in the school curriculum. These omissions leave many young adults lacking in the financial awareness that they need to survive in a world where they will rely on their own savings if they are ever to stop working. Even if they earn the right to a full State Pension, today this amount hardly covers Council Tax and Utility bills, and so they need to save and build up a sum of capital amounting to around twenty times their desired retirement income. A frightening number.
If you order copies directly from jowelman@icloud.com, the price can be discounted and the margin ex the bookstore’s marketing levy is considerably greater.
Silver
The performance of the silver price has defied logic for several months. The average long-term ratio between the values of gold and silver has been around 40:1, so you could buy forty ounces of silver by selling one ounce of gold. There have been times when silver has traded as low as 15:1, but the current ratio is near its all-time high in excess of 100:1, so one ounce of gold buys over one hundred ounces of silver. So why hasn’t silver followed gold to all-time highs?
Silver has been used as a monetary asset in minted coins for thousands of years, but the metal differs from gold in that it also has many key industrial uses - and not just the manufacture of jewellery or to fill decaying teeth! You might remember that silver was once an important element in developing photographs, but of course in the digital age this use has long gone. However, silver remains the most efficient conductor of electricity and forms an integral element of every iPhone and solar panel, amongst hundreds of other electronic applications.
The price of silver is all the more extraordinary given its increasing scarcity. There are relatively few silver mines, with most silver being extracted as a byproduct from other mining processes, such as copper, zinc, lead and gold. Moreover, most of the planet’s silver has already been discovered, because unlike gold, it is an element found relatively near the surface of the earth’s crust. However, in common with gold, the price of silver is manipulated by the ‘paper market’ - through futures trading. Futures contracts offer buyers and sellers the right to deliver or receive physical delivery at the end of the contract’s term, but most are settled in cash, avoiding any need for traders to own large quantities of these metals. Daily trading volumes of this ‘paper’ silver are enormous, often multiples of all the silver in existence. This mechanism has enabled traders to use relatively small amounts of capital to control very substantial positions in the futures market.
The ‘Bullion Banks’ who trade in the paper metals markets have been consistent sellers of silver futures, obliging them to sell silver at a pre-determined price at a future date. This has long been a profitable activity, and unlike trade in the underlying metal, there is almost no limit to the volume of these trades. This has in turn facilitated the suppression of the silver price, despite both growing demand and a serious global shortage of the underlying metal. The other major use of silver in high volumes is in the defence and munitions sector, with 500 g of silver required for the manufacture of every Tomahawk Missile. This seems likely to have influenced America’s determination to prevent the silver price from rising in response to the current shortages of supply.
However, this situation has now changed - and very dramatically. China (already the world’s largest silver producer), India and Russia, among the other BRICS and several Far East central banks, have been aggressively increasing their stockpiles of gold and silver, and this is putting upward pressure on prices - particularly for silver which is much the smaller and less liquid market. At the same time, buyers of gold and silver futures have started to impose their right to demand physical delivery of the metals at the end of the contract term. This means that the short seller needs to source enough of the physical metal, rather than settle in cash at the end of the futures contract term. Because of the huge leverage used to short through the futures markets, there is not enough silver in existence to fulfil these delivery obligations and traditional western stockpiles are now all but exhausted.
Demands for delivery have removed the vast proportion of physical silver from storage facilities in London, Geneva and New York, to the extent that the Bank of England now takes eight weeks rather than the contractual three days to deliver both gold and silver bars. In effect, the Bank of England is already in default. I have myself witnessed this shortage because my attempts to add to my stock of 1 kg silver bars from the Royal Mint have been met with ‘not available’ messages.
This situation has been exacerbated by a steady repatriation of gold and silver by central banks due to the threat provided by the US weaponisation of the Dollar. Central banks hold US Treasury Bonds as Tier One assets - previously accepted as a safe, liquid and universally accepted reserve asset. Many of America’s adversaries and former friends have been spooked by both the exploding US deficits and the administration’s willingness to confiscate US Treasury bonds when America chooses to punish countries for some misdemeanour - as with Russia today. Gold is the only other Tier One asset, and so central banks have been selling down their holdings of US Treasuries, and to avoid any risk of confiscation, are repatriating their growing reserves of physical gold and silver from the main western repositories.
The suppression of the silver price by Bullion Banks through short selling has been successful, but when buyers of silver futures demand physical delivery of the metal, the global shortage of silver generates huge problems for them. Western stocks of silver appear to have almost run out, and the BRICS continue to increase their strategic stockpiles. Not only does this make it unlikely that the suppression of the silver price can continue indefinitely, if these banks cannot close and reverse short positions they could suffer significant losses.
About the author
Jo Welman had a career in the City spanning 45 years and worked in a wide variety of financial sectors. After graduating from Exeter University in 1979 with a degree in economics, Jo spent ten years at Baring Asset Management where he managed a range of UK and US pension funds and unit trusts, investing across multiple sectors including bonds, international equities, commercial and residential property and private equity.
In 1989 Jo became Managing Director of merchant bank Rea Brothers’ institutional and private wealth investment management division. Over the following decade Jo launched a series of specialist investment trusts and funds in a variety of industry and property sectors, before forming a joint venture with reinsurance broker Benfields (now Aon Benfield) and raising one of the first limited liability corporate capital vehicles for the Lloyds insurance market in 1993. As part of his long-standing involvement in the insurance industry, Jo co-founded the Benfield Re-Insurance Investment Trust plc (Brit) in 1995. Following the sale of Rea to Close Brothers in 1999 Jo became Chairman of Brit Insurance Holdings Plc and in 2001, in partnership with Brit and Benfields, he co- founded specialist asset management firm, EPIC Investment Partners (EPIC).
Jo continues to chair an insurance company’s asset allocation and capital management process and provides corporate finance and investment advice to entrepreneurs and private investors. He sits on the board as a non- executive director of ARK Syndicate Underwriting and was appointed Chairman of the Walker Crips Group, the publicly listed fund manager, in April 2025.
“Feet up by the pool”
Jo does not receive any remuneration for his EPIC commentary. Instead, EPIC is pleased to promote the latest edition of his book “Feet up by the pool”.
Profits from sales of the book go to The Money Charity, a charity that shares Jo’s objective to help fill in some of the worrying gaps in the school curriculum. These omissions leave many young adults lacking in the financial awareness that they need to survive in a world where they will rely on their own savings if they are ever to stop working. Even if they earn the right to a full State Pension, today this amount hardly covers council tax and utility bills, and so they need to save and build up a sum of capital amounting to around twenty times their desired retirement income. A frightening number.
As Jo eloquently says, “If we can do our bit to raise awareness of the impending UK saving and pensions crisis, the exercise will have been worthwhile.”