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    Silver ‘n Gold: Everyone loves, but which should you own?


    November 11th, 2010

    Comments (16)
    Read by 276 people

    This article has been generously contributed for your reading and learning pleasure by Jerry Western, author of Got Gold? Get Gold!

    Silver has had quite a run the last couple months, rising from about $18 an ounce to $25 recently. It’s no surprise then, that it has gained much attention and interest from investors. Even more so than gold. How do I know this? I write brief commentary on gold and silver at Hubpages.com using the alias ‘Gold Money’. During this last run up of the silver price, the number of reads of a piece I wrote titled ‘How High Could the Price of Silver Go?’ literally exploded. That did not happen with my gold pieces. Silver is where current interest lies and it’s not surprising. Silver is an extremely volatile market and tends to rise or fall in spurts. I’d like to focus on silver, 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 have been used as money since forever. Historically, the price of gold has almost always been greater than that of silver. This is because silver is somewhere around ten to twenty times more plentiful in nature. Does this mean that we should only hold gold? I say no for a variety of reasons. One, being that you get more (metal) for your money holding silver. Two, being that the price of silver has more room to appreciate, both because of its relative low price and because of the current relatively high silver:gold price ratio. Does this mean we should only hold silver? I say no again. Gold is highly recognizable, highly desired, and 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. Just as you would diversify your portfolio among asset classes and large/small cap stocks, etc., so too should you diversity between the metals. No one knows which will appreciate faster or further and be the superior investment going forward. Therefore, I hold both.

    Silver has three huge attributes or qualities that make it special, valuable, and unlike any other metal: its versatility, its inelasticity, and its duality.

    By versatility I mean that it 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.

    By inelasticity I mean that more of it 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.

    By duality I mean that 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, it tends to have a market no matter the condition of the economy.

    These three characteristics make silver unique among the metals and thus valuable in that uniqueness.

    Here are some things to ponder when comparing and contrasting the metals. In no particular order…

    • Gold is hoarded and the above-ground stockpile is continuously expanding. Silver is consumed and is uneconomical to recycle in most uses.
    • 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.
    • 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.
    • Silver is used in more applications than any other commodity (aside from petroleum).
    • 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.
    • There is less gold mined than silver, but there is more gold than silver bullion in existance.
    • Both have been selling near or even below the cost of production for the last 15 years.
    • Both are up over five fold since the beginning of this current bull market.
    • Silver is used in industry and for investment. Gold is used almost entirely for investment.
    • Silver is more expensive or difficult to store (or hide) than gold because you get more for your money.
    • It would be easier for silver to rise higher on a percentage basis than gold due to the ‘law of large numbers’.
    • 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).
    • Most of the silver ever mined is unrecoverable and gone for good.
    • Silver supply and demand are both ‘inelastic’. This means that supply cannot be ramped up quickly when price rises.
    • The National Inflation Association (NIA) picked silver as its investment of the decade in December 2009.
    • The Silver:Gold Price Ratio favors silver appreciation to return to historic norms.
    • Both tend to rise and fall in price together but not necessarily in percentage terms. Their price movements are still highly correlated though.
    • In precious metal bull markets, silver always outperforms gold before it’s over.

    What of these differences?

    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. During the first two years of this bull market, silver did indeed lag gold. It then cought up to gold and tracked it the next couple of years, and then outperformed gold until early 2008 when the markets crashed. At its peak, 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.

    Precious Metal 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 pm stocks lost 90% or more of their pre-crash market value.

    One other conclusion to be made is that when the economy is good, silver will tend to outperform.

    When the economy is bad, gold will tend to outperform. This is because silver is also an industrial metal besides being a monetary metal. It 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 it did fall substantially during the financial meltdown of 2008, it fell less than did the stock indexes, silver, or oil.

    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.

    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 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.

    Which is better to own? I own some of both but do believe that silver will outperform in the end.

    There have been two extremely important and potentially explosive events for silver that happened just this past week.

    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.”

    Also,

    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.

    Full Disclosure: The author holds positions in gold, silver, and precious metals equities.

    This material may only be copied or reproduced with permission of the author.

    About the author:

    gotgoldgetgoldJerry Western teaches classes about silver and gold and is the author of the newly available work, Got Gold? Get Gold! A Book on How to Protect your Wealth with the 21 st Century Gold Rush. It is available in hardcopy and as an e-book from most major book retailers.

    Got Gold? Get Gold! (eBook at Smashwords)
    Got Gold? Get Gold! (for Kindle at Amazon)
    Got Gold? Get Gold! (for Nook at Barnes and Noble)

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    Date: November 11th, 2010
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    16 Comments...

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    1. Silver and gold, while similar, are like $500 bills and $5 bills. Now, don’t criticize my analogy. I know the 500 and 5 dollar bills aren’t worth crap in reality. But, in virtuality, they are.

      You would never take 5 dollar bills to buy a car. And you’d never take a 500 dollar bill to get gas and an ice cream cone. …unless you absolutely had to.

      So, you barter for small stuff with silver and big stuff with gold. Gold is much more dense, value wise, than silver.

      Now, if you are talking investment, the spot price on silver, typically, swings twice as wide as gold, percentage wise.

      Also, according to historical norms, silver is currently depressed.

      Personally, I prefer silver with its much bigger upside pressure. …and, it more fits into my SHTFPlan. For real wealth storage that you aren’t wanting to split for barter, gold is much better. A 1lb (troy) bar of silver is currently worth about $280. A 1lb (troy) bar of gold is currently worth about $14,000. If you have a fortune to transport, gold is better. But, if you have a 1oz gold coin and you want to trade it for, say, a gun that is half the worth of the coin, what are you going to do? Cut it in half? No. That destroys its integrity and decreases its asthetic value.

      So, in summary, one has to ask themself: Is it for storage (and inflation protection) of large amounts of value? …or is it for barter?

      For barter, I would recommend a combination, maybe 25% gold and 75% silver.

      For wealth storage and protection, gold is much more compact. If you had $100,000.00 of value to smuggle accross the Canadian border, you better be doing it in gold. Thats only about 70oz., less than 10lbs. If, however, thats in silver uh, that figures out to be about 400lbs. But, if you’re not moving it around, IMHO, you have much more protection in silver because of the greater upside. If its 400lbs, it makes it hard to steal.

      I know a guy that had about 300oz of silver. His neighbors knew he had it. There was talk. He was broken into repeatedly. They could never find his wealth even though they tripped over it repeatedly. He had purchased 3, 100oz bars, sanded the logos off of them and painted them red, then, used them as door stops.  Ha!

      So, take your pick. Its much like choosing which gun to use, which car to buy or what kind of lawnmower you need. Good luck! Keep prepped. Food, Fuel, Firearms is what you need. After that, some silver and/or gold may soften the impact of any type of SHTF event.

      -NR

    2. overtheedge says:

      Complete agreement on the fundamentals.

      I would tender the argument that you only buy PMs with monies not needed for the coming extended period of austerity. PMs will have value once the mess settles down. Until then, food and tools will have far more utility.

    3. lostinmissouri says:

      Gold and Silver will be the capital base for rebuilding America, after the collapse.   Just get some now…..FRN price does not matter…..buy it while you can!

      Those, who have prepared by buying PMs,  will be the money backbone of  the recovery,  and will reap the rewards of such.

      overtheedge is correct when stating that PMs will have value once the mess settles down.

      America must go through the pain to get to the other side.  But, hey, we are Americans.   We can come out of this stronger, and better!  imho

    4. Tom says:

      I believe they will have the most value on the vertical run up before the end of the feeding frenzy and (hyper-inflation) & after the crash depending on what you barter for (deflation).  The uppers know this too but what controls will be in place!  “New money”, taxes, illegal to own, black market, or wealth frowned upon and turned in by neighbor.  We own nothing except maybe our thoughts.  The rest we are allowed to use day by day with choices (hopefully).  NR, I see your numbers are a bit low, even for spot, but I catch your drift.  21K for cheapest gold bullion & over 400 for bars using 14.58.

    5. Yes use as much of the worthless paper money you can to aquire Gold and Silver!

    6. MadMarkie says:

      1. weapons & ammo
      2. food
      3. water; storage/purification
      4. shelter
      5. silver and/or gold
      6 items for barter

      If you don’t have your weapons and ammo then someone will take your life for what little else you may have.

      If you don’t have food, water and shelter, then you are going to die anyway.

      Gold & Silver will be almost without value in the immediate aftermath of a true SHTF situation. No one will be trading food, water or security for gold and silver. It is only after the society has had a chance for things to shake out and stabalize a bit and some sort of a functioning economy has had a chance to establish itself that gold and silver will accepted in transactions.

    7. sketch says:

      there is already a precedent for seizing gold from the masses. there is no precedent (yet) for silver. More people have silver. if not in bullion, than in jewelry, and flatware, and cameras/film, etc…

      Silver has production value and would be impossible to seize large quantities of it – aside from bullion, as people would just melt down their silverware, find a way to take it our of their nylon clothing, musical instruments, circuit boards are in EVERYTHING these days, medical equipment and medicines, hell -  even nuclear control rods contain silver… silver could never be seized to the degree that gold already HAS been, and soon may be. Unless someone can come up with something other than gold to back a new currency with – it looks to me like 1933 will happen again at some point.

    8. Tom says:

      Governments, bankers & uppers believe that they are the only ones to truely own gold.  Many others don’t fully understand it, with most not understanding it at all.  They will let you own silver but they want that also….

    9. Durango Kidd says:

      The best way to invest in gold and silver is to file a claim on an old mine, and use that as your bugout location too!

    10. Tina says:

      Sketch….you forgot X-rays. They contain silver also. I was recently contacted by company that purchases old x-rays and remove the silver from them….who would have thunk it 

    11. MadMarkie says:

      @ sketch -

      They just recently did the private safe deposit box confiscation in England recently. These aren’t banks per se; all they do is rent safe deposit boxes in high security areas to the general public.

      The government closed all of these facilities and forced the safe deposit box center employees to open all the boxes. Then the government thiefs searched through the boxes and confiscated everything that they found “suspicious”.

      Grandma’s antique jewlery? Grandpa’s antique watch? Been putting a little cash aside everytime you got the chance for the last 40 years? PLEASE PROVE TO US THAT THIS CASH/PROPERTY IS ACTUALLY YOURS AND THAT YOU ACQUIRED IT LEGALLY!!!!! Can’t do it???? Then it belongs to the government!!!!!!!

      And just how many people with bank safe deposit boxes could go back and justify the purchase/acquisition of every item in their box? Where did grandpa get the money that he used to buy that ring for grandma? Don’t know??? Goodby ring!!!

      Check out Amazon for a book called Secret Rooms/Sectrt Compartments by Jerry Dzindzeleta. It’s < $20. If they can’t find it ….. then they can’t steal it.

    12. Tom says:

      Who’s the big boy today in this world?  China!  They get to buy more gold & silver at a cheaper rate including with their worthless U.S. T bills.
      NR, he probably filled in the stamped bars with bondo then painted them.

    13. The silver manipulation scheme is enough of a good reason for people to make purchases of silver, because the breaking of its manipulation will help in freeing gold as well.

      Max Keiser has trumpeted the horn on everyone googling “Crash JP Morgan, Buy Silver” and (if they can) making a purchase. He’s been looking for a small grassroots campaign to show people what power  they have in their hands  – such as in the call to boycott Coke in order to cause a stock crash and use the financial manipulators system against themselves. Its the old saying, strength is in numbers. If enough people both search “Crash JP Morgan, Buy Silver” and buy 1 coin, it will demonstrate our power as well as free us from one of the tentacles.

      There is a Word Document that people can print out and post on community bulletin boards. With WiFi and Smart Phones, it only takes a moment to turn a spark of curiosity into an algorithm assault. Example: “Think the Banks Are Crooked? It Only Takes Five Seconds to Fight Back! Google Search “Crash Morgan, Buy Silver.” Who says you can only go viral on the internet?

      http://tinyurl.com/2cj428u

    14. Durango Kidd says:

      Tom: Contrary to popular misconceptions, China is not the “big boy on the block”. We are, by a long shot. China is a distant second. Its economy is only one third  that of the USA.

      China buys all of the gold produced in China, and China is the number one gold producer in the world, so they do not need to purchase gold on the open market. It costs less than $100 an ounce to produce gold in China. Buy Chinese miners as they have the biggest profit margin.

      They use US dollars to purchase real mineral and energy assets in South America, Africa, Central and Southeast Asia, and also from Australia. They are willing to pay top (depreciating) dollar to get (appreciating) real assets.

    15. Dennis says:

      Gutter Economist,  The site still recommends 10% of one’s worth in ETF’s? There is no reason in the world to do that. It’s about to be the first to crash, and there will be no time to act. You will lose that money. Also, buy on dips, and sell on peaks? Buy on dips, and leave it at that until you can plan your next move.

      I would own only physical, silver only. When the ratio tightens up, swap out for some gold for the larger purchases. Much more room for silver to run these days than gold. Silver is also rarer than gold now, due to its industrial use. It’s gone, baby! Gone!

      Sprott is also acquiring $50B worth for his fund, China has just reduced their exports of silver from 70% to 10%, lawsuits are flying, and the short squeeze will be massive. Silver is the ay.

      I love Max’s Keiser’s plan. I say do it! And good luck!

     
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