If you’ve ever wondered about global inventory of gold and silver, then Ted Butler has your answer. In a recent interview, he discusses why silver may be a better investment based on its supply and demand fundamentals. (Read the full interview here)
World gold inventories, including jewellery, have increased from 1 billion ounces (one ounce equals 28.35 grams) in 1940 to 5 billion ounces today. In contrast, silver inventories have declined from 10 billion ounces in 1940 to 1 billion ounces.
This begs the questions, posed by Vivek Kaul: Why is gold so much more expensive than silver?
I would say, because of an incredible worldwide misperception. That misperception is driven by the published price. People everywhere assume that the price doesn’t lie, that all you need to know is seen in the price.
If gold is 70 times more expensive than silver, then it is normal for a person to think there is 70 times more silver available than gold. No further investigation of the facts is undertaken.
It seems normal to me, too! But if one were to look closer at the problem, and realize that silver inventories are at 1 billion ounces globally, we’d have to conclude that either gold is over-priced or silver is under-priced. I like silver right now, especially when one considers the current inventories for the metal. Also, unlike gold, silver acutally has industrial applications other than being just a traditional store of wealth, like gold. So, we actually use silver for manufacturing, kind of like iron or copper.
If we have a shortage, or perceived shortage in industrial silver availability, coupled with individual investors seeking silver as a store of wealth during economic crisis, Butler says we could see significant prices increases:
Because of the observable facts and the unrecognised rarity of silver. Please remember that I made those statements when silver was under $5. Since we have already seen $20, going to $50 or $100 shouldn’t seem so extreme.
Please consider this — if silver moves to a 10 to 1 price ratio with gold, from the current 70 to 1 ratio, that will mean silver will have outperformed gold by 7 times. Even though silver will still be one-tenth of the price of gold, investors in silver will have seven times better return on silver than with gold. That, I think, is very likely.
If you are a precious metals investor, or you are an average Joe with only a little bit of money, consider silver as a possible alternative to gold. Both metals (gold and silver) should rise sharply in the long-term, but silver may out perform gold for a variety of fundamental reasons.