Gold vs. Silver
Which do you think is a better investment for a down market, and why? What are the pro's and cons of one compared to the other?
Best Answer
196 points
TeekaTiwari answered 2 years ago …
I'd buy gold right now - I think it's in a long term uptrend and as interest rates drop and the dollar continues to trend lower gold will continue to provide above average returns in this market.
Silver on the other hand is something I'd be a buyer of only at a market bottom - so when we hear that the US is officially in a recession this year, that's when I'd be a buyer of silver.
Answers
3963 points
MNSL answered 2 years ago …
There is no doubt gold is more reliable investment than silver. Gold has long term value. Only thing we must consider is price that we are going to pay for any asset class. Sometimes some valuable asset can stagnate for longer period. We have to see the situation of the world economy, inflation, interest rate movement, demand and value of dollar and other hared currencies etc before we invest in gold or silver. Sometimes it is better to invest in currencies than in gold. If silver come down to unbelievable price it is worth investing.
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4085 points
EthanR answered 2 years ago …
I agree with Teeka that gold is the better buy over silver, but I think I would wait for a short term pullback. My chart for GLD shows the RSI at 74 and the MACD at 2.281/1.667/0.614 (12, 26, 9). That's a bit rich, unless you want to dollar cost average your way in.
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1130 points
sundarkambam answered 2 years ago …
With respect to Teeka, I have a contrary view.
Here is the link to the article as to why silver is a better bet than Gold.
http://news.silverseek.com/GoldIsMoney/1199890552.php
For a few months now, people have been wondering why the silver price seems to be lagging behind the gold price. After all, in 1980, gold hit $850/oz., and silver peaked out at $50/oz. But today, gold is making new all-time highs at $890 today, while silver languishes at a mere $15.83 as I begin this article this evening.
In recent years, from about 2001, the ratio of the price of silver to gold has risen from about 70 to 80 ounces of silver, for 1 ounce of gold, to about 56, where it stands today. In fact, in the past 6 months, the ratio has remained rather steady at about 55 to 1.
In 1980, the ratio had returned to the historic 15 to 1 ratio.
So, only when compared to 1980, can silver still be described as "languishing". Yes, it might be said that we are still at the bottom of a 27 year bear market for silver. (But now, we have "price action" and a price "breakout!")
But if you consider the time frame of the past 6 years, silver is outperforming gold, as the number of ounces of silver needed to buy gold has narrowed from 80 to 55.
So then, why is silver not at $50/oz. yet?
The reason, I think, is that gold is not at $850 (circa 1980). The reason is that the measuring stick of the dollar is completely broken.
We must adjust for inflation since 1980. Today's gold market will be like the gold market of 1980 only after you adjust for inflation. We are not there yet.
But a key difficulty is: "How should we adjust for inflation?"
We can adjust via the CPI, the government produced inflation statistics, but these, most agree, understate inflation.
An online inflation calculator quickly shows that $850 in 1980 is really $2275 in 2006.
http://www.westegg.com/inflation/
However, my research shows that M3 in 1980 was $1.8 trillion. Today, M3 is just over $13 trillion, as pointed out by http://www.nowandfutures.com/key_stats.html#m3b
So, 13 divided by 1.8 is 7.2, which is what we need to multiply the 1980's gold price by, to get a more accurate "money creation inflation" adjusted price for today's dollars.
$850 x 7.2 = $6120
Gold, today is not at $6120/oz., and therefore, there is not the same kind of excitement about gold today like there was in 1980. By the time gold hits $6120, or a somewhat higher price by the time we reach it, because it will take time to get there, and during that time there will be even more dollar price inflation by which to adjust, I would only then expect a similar excitement about gold that existed in 1980.
I believe it is that kind of excitement that will drive the ratio price of silver to gold back to the historic norm of 15:1, and most likely exceed it.
So, by the time gold hits $6120/oz., or higher, silver will hit $408/oz. or higher. (Because $6120 divided by 15 equals $408.)
And by then, silver will have merely "kept pace" with gold, having returned to the historic ratio. And that's what we could expect if the investment outlook for both metals was about the same.
However, for a whole host of reasons which I will now list, I expect the silver price to do significantly better than that.
Primarily, the silver to gold ratio held for hundreds of years at about 10-15 to 1, during which time silver and gold were money around the world. But in the late 1800's, Germany stopped using silver as money, and silver began to be "demonetized" as nations went to the "gold standard".
I believe that trend of "silver demonetization" of over 100 years is now over, and ended for good. Why? Because people are going to make tons and tons of money as silver rises from $15/oz. to over $408/oz., and people are now seeing the potential of that, and are investing money into silver, and using silver as a store of value again, which, in other terms, means a return to "monetary demand".
Although monetary demand for silver is slowly beginning to return, it still has not started yet in any significant and meaningful way.
Silver investment demand may only be about 50 million ounces per year, while silver recycling probably stands at about 200 million ounces.
So, with so little silver available for investment, silver is easily set to outpace gold, and exceed the historic 15 to 1 ration by the time there is any public excitement about the precious metals.
By the time even 1% of the nation's $13 trillion in liquid wealth tries to buy gold and silver within a year, the price of gold will probably exceed $3000/oz., and the price of silver would probably exceed $150/oz.
Let me show again how small the silver market really is. The annual production is about 650 million ounces, with recycling about 200 million, and other silver sold about 50 million ounces. That's a total of about 900 million physical ounces of "fresh" silver entering the market, in a year. That is balanced by about 900 million ounces of consumption, which is balanced by about 45% demand in electronics, about 30% demand in jewelry, and about 20% demand in photography. About 5% is investment demand.
Oh, I suppose more silver than that actually trades each year, as some investors sell silver to other investors, but that's the total net flows.
But if new investors enter the market, they will have to displace that 900 million ounce annual flow (which can only be done at higher prices), and there is little silver left for any new significant monetary demand, that will surely be coming in the near future now that inflation is picking up.
Another way of looking at the 900 million ounces of silver per year, is that it's about 2.5 million ounces per day. That's not much in the way of finance. And since only 5% of that is purchased, net, by investors right now, which is only 125,000 ounces of silver per day, in the entire nation, purchased by investors.
That's a tight market. Set to explode in price.
All of this is literally guaranteed to make a few certain wise people, such as you, very rich.
As silver moves from $16/oz. to $408/oz., which is literally guaranteed by historical ratios and historical inflation measures, and insured by the silver scarcity, many people will make well over 2500% (as denominated in dollars) on their silver investment.
Over what time frame? Who can say? I expect annual returns to average about 50% until that final goal is reached.
As always, don't keep your silver with anyone who says they want to hold it for you. Get the scarce physical stuff. All the major brokerage houses and big banks practice "fractional reserve silver holding" for all their clients, and you are not guaranteed anything in the event that they go bankrupt.
357 points
SharonMR answered 2 years ago …
Have to agree with Teeka and Ethan, gold is the better buy. Not only because of it's trend higher in value, and it's value against the dollar, but because gold is the universal currency for trade. If paper money comes to the point of no worth, we will all be buying and selling in gold. Think back to the days of the gold rush.
Silver would be my second choice, because it is not as valuable as gold for trading. Although it does have trade value, It does not carry the same weight as gold.
