Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why You Should Have Silver as well as Gold in Your Portfolio

Commodities / Gold and Silver 2010 Nov 14, 2010 - 12:07 PM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleJerry Western writes: Silver has had quite a run the last couple months so it’s no surprise that it has gained much attention and interest from investors – even more so than gold.  It is extremely volatile, however, and tends to rise or fall in spurts so I’d like to focus on its attributes as compared to gold, make a case for holding some, and discuss some ultimate price possibilities.


Gold is known as the ultimate form of money; the king of money.  Silver is generally thought of as gold’s little brother or ‘Poor Man’s

Gold’.  It is said that:
Gold is the money of Monarchs,
Silver is the money of Gentlemen,
Barter is the money of Peasants, and
Debt is the money of Slaves.

Both gold and silver have been used as money forever.  Historically, the price of gold has almost always been greater than that of silver.  This is because silver is ten to twenty times more plentiful in nature.

Should We Only Hold Gold? 

I say no for the following reasons:

1. you get more (metal) for your money holding silver. 

2. the price of silver has more room to appreciate, both because of its relative low price and because of the current relatively high gold:silver price ratio. 

Should We Only Hold Silver? 

 I say no again – for the following reasons: 

1. Gold is highly recognizable and highly coveted in all societies.  Most world governments and central banks hold gold but virtually no silver, save a few notable exceptions (Russia, China, and India).  They know that gold is the ultimate money. 

2. Just as you would diversify your portfolio among asset classes and large/small cap stocks, etc., so too should you diversity between gold and silver.  No one knows which will appreciate faster or further and be the superior investment going forward.  Therefore, I hold both.

What Are Silver’s Major Attributes?

Silver has three huge attributes that make it special, valuable, and unique:

1. Versatility: silver has many and varied important uses where it is the best solution.  It is either the best material to use for a given application or it is the least expensive of all the alternatives.
2. Inelasticity: more silver is not produced as price increases because most silver comes from other-than-silver mines, and less is not consumed as the price increases because there are no less-expensive alternatives.
3. Duality: silver has the potential to do well price-wise in both an up and a down economy.  Being both an industrial metal as well as money in and of itself, silver tends to have a market no matter the condition of the economy.

How Do Gold and Silver Compare With Each Other?

Below are 22 things to ponder when comparing and contrasting gold and silver, in no particular order:

1. Gold is hoarded and the above-ground stockpile is continuously expanding.  Silver is consumed and is uneconomical to recycle in most uses.
2. There is greater than 300 times the dollar value of gold in above ground form as there is silver.  Silver is the smaller market by far.
3. According to the U.S. Geological Survey, there are fewer years of production of silver left in the ground than any other metal or mineral, including gold.
4. Silver is used in more applications than any other commodity (aside from petroleum).
5. About 30% of silver comes from primary silver mines.  Approximately 70% is byproduct of other primary metal mines.  Most gold is produced from primary gold mines.
6. There is less gold mined than silver, but there is more gold than silver bullion in existence.
7. Both gold and silver have been selling near or even below the cost of production for the last 15 years.
8. Both gold and silver are up over five fold since the beginning of this current bull market.
9. Silver is used in industry and for investment.  Gold is used almost entirely for investment.
10 Silver is more expensive or difficult to store (or hide) than gold because you get more for your money.
11. It would be easier for silver to rise higher on a percentage basis than gold due to the ‘law of large numbers’.
12. Only about 2% of the 160,000 tonnes of gold unearthed over the last 5,000 years has been lost and is unrecoverable according to Goldfields Mineral Service (GFMS) and the World Gold Council (WGC) while most of the silver ever mined is unrecoverable and gone for good.
13. Silver supply and demand are both ‘inelastic’.  This means that supply cannot be ramped up quickly when its price rises.
14. The National Inflation Association (NIA) picked silver as its investment of the decade in December 2009 (see article here).
15. The Silver:Gold Price Ratio favors silver appreciation to return to historic norms.
16. Both gold and silver tend to rise and fall in price together but not necessarily in percentage terms.  Their price movements are still highly correlated though.
17. In precious metal bull markets, silver always outperforms gold before it is over. Silver has a tendency to underperform gold as a rally in the metals gets going, however, it tends to greatly outperform gold near the market tops.  At its peak, for example, gold was up nearly 250% in early 2008 but silver was up well over 300% at the same time from the beginning of 2002.  As the metals both declined throughout the remainder of 2008, silver fell farther than gold from peak to trough.  Silver fell nearly 60% while gold fell about half as much or 30%.  Now on the way back up silver is again leading.
18. Gold and silver related stocks tend to greatly outperform on the way up but terribly underperform on the way down.  On the way up, many stocks leveraged the metals 3, or 4, or 5:1 but on the way down some gold and silver stocks lost 90% or more of their pre-crash market value.
19. When the economy is good, silver will tend to outperform and when the economy is bad, gold will tend to outperform.  This occurs because silver is also an industrial metal besides being a monetary metal and, [as such,] is in great demand when the economy is rolling along but less in demand when the economy is in recession.  Conversely, gold tends to be forgotten when times are good and remembered when times are bad.  Even though gold fell substantially during the financial meltdown of 2008, it fell less than did the stock indexes, silver, or oil.
20. I believe silver may outperform gold dramatically before the bull has run its course.  Silver rose more than 38 fold in the 70’s bull market; from a fixed price of $1.29 to $50 ($52.50 CBOT).  Silver bottomed just above $4 in 2001.  38 x 4 = $152.  Not a bad initial target.
21. Interestingly, the Silver/Gold ratio bottomed at ~ 16:1 in 1980.  In other words, you could exchange one ounce of gold for 16 ounces of silver near the end of that bull market.  Today, the ratio is about three and a half times higher (~56:1).  Should gold get to $6375 (see article here) and the ratio return to 16:1 at the top, silver will reach almost $400 an ounce.  That’s a 100 fold increase from its pre-bull low.  Remember, we’re only playing with numbers here, the markets will surprise and do their own thing in due course (see article here).
22. The following two extremely important and potentially explosive events for silver have happened just recently:
a) CFTC commissioner Bart Chilton, in regards to the trading of silver on the Commodities Exchanges, said; “There have been fraudulent efforts to persuade and deviously control that price”, and “I believe there have been repeated attempts to influence prices in the silver markets”, and  “the public deserves some answers to their concerns that silver markets are being, and have been, manipulated.” 
b) Two separate lawsuits against JPMorganChase and HSBC for manipulating and suppressing the price of silver futures on the Comex in violation of the Commodity Exchange Act and the Sherman Anti-Trust were filed as class action suits. Any hint that these suits have merit and may be settled in favor of the complainants or a finding of price suppression by the CFTC in its current silver market investigation, could send the silver price sharply higher.

Which is better to own – gold or silver? 

I own some of both but I believe that silver will outperform gold in the end.

Don’t forget to sign up for the FREE weekly "Top 100 Stock Market, Asset Ratio & Economic Indicators in Review."

Jerry Western is the author of the newly published “Got Gold?  Get Gold!: The Everything Gold Book” on how to protect one’s wealth in the 21st century gold rush. Buy it on-line or at your favorite book store.

Visit http://www.FinancialArticleSummariesToday.com, “A site/sight for sore eyes and inquisitive minds”,  and www.munKNEE.com, “It’s all about MONEY”,  where you can sign up for their FREE weekly "Top 100 Stock Market, Asset Ratio & Economic Indicators in Review."  

© 2010 Copyright Chris Mack - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in