Money, Markets, and Metals

Back in the September, 2000 Moneychanger I published an article, "RED HERRINGS ACROSS SILVER’S TRACKS" to answer an article by one Andrew Kashdan. The article had appeared on Grant’s Interest Rate Observer web site, and re-hashed the standard "digital will replace silver in photography" argument. Since this handle is the one every analyst green to silver seizes, this was predictable enough.

It also happens to be wrong, all the way to the basement.

After that article was published on goldeagle.com one of the readers wrote me to complain that I had erred. (My chief argument against digital replacing silver is its far greater cost). My critic noted that digital cameras were now available as low as $99, and their resolution had greatly improved.

Of course, what he overlooked in this equation was one small drawback: you cannot enjoy digital photography with a digital camera alone. (Well, I suppose you could, if you didn’t mind having to look at your photos in that little 2" x 2" screen on the back of the camera. But that wouldn’t satisfy most folks.)

So in December when we were down in New Albany having The Moneychanger printed, Susan and I went to the Wal-Mart Supercenter, following our custom. Susan let me loose long enough to do my research in the camera department, where I found a salesman who really knew his stuff. Here’s what was available:

For $179.73, Polaroid PDC 700, 1024 x 768 pixels, built-in 4 meg memory, 20-30 pictures capability

For $199.00, Hewlett Packard C200CL, 1152 x 872 pixels, 4 meg compact flash card, 3 resolutions (40 basic, 20 fine, 8 superfine picture capability)

For $298.96, the Fuji, 1280 X 960 pixels resolution, 1400 zoom, smart media card, 20-30 picture capability

For $299.72, Olympus D360L, 1280 x 960 pixels, 8 meg smart media card, 122 standard quality pictures or two uncompressed super high quality pictures

For $498.00, Sony Mavica MVC-1073, takes 3.5" floppy disk, 10X zoom, rechargeable battery, in bitmap format, 1 picture capability, fine format, 15-20 pictures; normal resolution, 25-40 pictures.

Now stop right there. The digital photography set-up does not end with purchasing the camera alone. You will also need a computer.

One computer .....................................$1,800.00

But even a new computer won’t give you enough equipment to process your digital photos. You’ll also need a good colour printer.

One colour printer..................................$298.00

Now we’re on the road, unless you want the really high tech colour printer, which will run you $500.00 instead of $298.00.

Whoops, we’ll also need really good computer software to brush those warts off Aunt Tillie’s nose and white out her moustache. Try Adobe Photo Shop.

One software package..............................$300.00

All-righty, then, we’re all ready to play around with our digital camera set-up, at a cost of only $2,398.00. Let’s compare what "outdated" silver halide technology would cost us:
 
 

One 27-shot Kodak Maxflash

disposable camera with film, $6.77

One film processing, $4.68

Silver halide TOTAL $11.45
 
 

Well, now, shall we choose digital photography at $2,398.00 for our first shot, or silver halide at $11.45? You tell me.

Whoops! Did I forget to mention the slight difference in resolution? The standard resolution digital camera offers a resolution of about 800,000 pixels (picture cells). At the upper end, retail digital cameras offer a 1.6 million pixel resolution. What about silver halide film? It produces pictures with the equivalent of twenty million pixels, only about twelve and a half times the resolution of the best digital camera, or twenty-five times the standard retail digital. (Twenty million pixels translates to 4,472 X 4,472 pixels, to help you compare.)

The point, obvious to anybody but an analyst green to silver or a hopeless techno-addict, is that silver halide technology offers twenty-five times the resolution at 4.8 one-thousandths of the cost.

Add some facts, draw some inferences. First, the largest growth market for photography lies in developing countries where consumers are just now beginning to earn enough money to afford pictures of their families. Second, these consumers will be purchasing silver halide, not digital, as their first camera. Third, silver halide technology continues to offer a higher quality to photography consumers in all markets at a huge price advantage.

As much as it seems to contradict expectations, digital photography has in fact increased the use of silver halide photo products. Digital photography has, first of all, increased photography’s popularity in general, thus increasing demand for silver halide photographic products. Further, a lot of digital imaging actually employs silver-halide in a hybrid technology.

But the proof is in the statistics. According to CPM Group precious metals consultants, "Silver use in photographic materials ... is estimated to have risen about 6.0% world-wide in 2000. . . Major photographic companies are increasing their manufacturing in the face of stronger demand growth. From 1980 through 1998 the compounded annual, growth rate in photographic silver use was around 4.0%. Last year’s increase was 50% above that long-term trend growth rate. This represents a definite acceleration in the demand for silver-bearing photographic products that flies in the face of the rumours that digital is killing this market." (Myths in the Silver Market, 2/2001, CPM Group, 30 Broad St., New York, New York).

What’s the bottom line? Barring the discovery of utterly new technology, digital imaging will not be replacing silver in photography at any time material to our investment.

-- F. Sanders

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