Investing in Precious Metals 101 Ad

Does Silver have More Potential than Gold?

Login or register to post comments Last Post 5156 reads   14 posts
Viewing 10 posts - 1 through 10 (of 14 total)
  • Fri, May 01, 2009 - 02:49am

    #1

    Larry Frisa

    Status Bronze Member (Offline)

    Joined: Feb 21 2009

    Posts: 44

    count placeholder

    Does Silver have More Potential than Gold?

I put this post on the "Gold’s Near-Term Outlook" thread but was asked to post if elsewhere since it’s really a silver question.

This is a question I’ve been thinking about for a while and was hoping y’all could add some insight?

I’ve hear arguments that silver has a much higher upside potential than gold. This is based on a few things:

(1) The Gold/Silver price ratio has historically been 15/1 but now it’s around 72/1.  If it goes back to the ratio that it seems to like during less volatile times, then silver will increase 5X of what it’s now in addition to whatever gold rises to. (Assuming that gold doesn’t go down to bring them closer together.)

(2) Silver is a metal used in industry so the reserves become depleted from uses which makes it hard to recover (i.e. silver in electronics manufacturing). With a decreasing supply and increasing demand (electronics, etc.), this metal will be a lot more valuable in the future.

(3) The above-ground reserves of silver is getting smaller whereas gold is getting larger.  The numbers I heard said in 1940 there were 2 billion ounces of gold and 10 billion ounces of silver above ground. Gold mining and silver usage changed that so in 1980 there were 3 billion of gold and 3.5 billion of silver. And in 2006 there were 5 billion of gold and 1 billion of silver. Thus, silver is becoming more rare as compared to gold.
 
My question is this; if it’s true that there is much less silver above ground than 20 years ago, then why hasn’t silver increased in value like gold?  What happened to the 15/1 ratio? (Yes, the accuracy of the statistics I heard could be the problem but I wouldn’t think there has actually been 5X more silver mined than gold in the last 20 years.)  I’m thinking that the answer might have something to do with gold increasing in value due to the cultural aspect of holding gold in countries like India where average family incomes have been increasing.
 
Obviously it would be important to get a handle on this if silver is positioned for a large increase in the event of a decreasing (or collapsing) dollar.  On the other hand, if there’s a logical reason for silver values to stay low, one wouldn’t want to put too much of their savings into silver.

><>Larry

  • Fri, May 01, 2009 - 03:31am

    #2
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

Mr.Fri:

The arguments you put forward have good reasoning behind them. But what makes you think that markets are rational? Perhaps they are in the long term. In the short term, they are not. We will fnd out in due course what "Mr. Market" thinks about silver. In the meantime, we are speculating.

That said, I’m planning on buying a bit of silver bullion in the hope and expectation that it will be a good long term investment. If not, I will feel free to blame you. Okay? Can you please let me know your addess so I can send "Mikey" to even the score if your predictions don’t work out.

  • Fri, May 01, 2009 - 03:46am

    #3
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

15:1 was an artifact of having a fiat gold/silver standard vs using one or the other as currency and letting the other float.

Also, there is more than one way for the ratio to get back to 15:1. Silver could stay at current price and gold could fall.  Or silver might rise some and gold fall some.

I wouldn’t get hung up on the ratio, but since Nixon closed the gold window, "normal" ratio seems to be 40~60:1. 

FWIW….I have silver, but I’m buying gold too.

  • Fri, May 01, 2009 - 03:51am

    #4
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

Mr. Fri. When silver was used as a monetary unit and store of wealth, it was officially set by the governments at 8:1. Thats the last official ratio that was mandated by law.

 

  • Fri, May 01, 2009 - 04:08am

    #5
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

 

fwiw, my simple mind says to own some amount of both.  As far as what %age to put into one vs the other; to me that begs the question as to whether one is buying it strictly for appreciation purposes or rather as a store of value.   If buying for appreciation, then one would use whatever fundamental analysis or technical indicators that one prefers…if buying as a store of wealth and/or medium of exchange should SHTF, then 20/20 hindsight will ultimately show which %age would have been the best.  

JL Lord

 

  • Fri, May 01, 2009 - 05:43am

    #6
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

[quote=BSV]

The arguments you put forward have good reasoning behind them. But what makes you think that markets are rational?

[/quote]

Good point.  However, I would expect silver to increase as the industrial demand rises.

[quote=Ragnar_Danneskjold]

15:1 was an artifact of having a fiat gold/silver standard vs using one or the other as currency and letting the other float.  I wouldn’t get hung up on the ratio, but since Nixon closed the gold window, "normal" ratio seems to be 40~60:1. 

[/quote]

Thanks, this is the kind of information I was looking for.  Since the world economy is so large I guess it not possible for any major currency to be tied to gold again. 

[quote=SPM]

Mr. Fri. When silver was used as a monetary unit and store of wealth, it was officially set by the governments at 8:1. Thats the last official ratio that was mandated by law.

 [/quote]

What do you mean it’s the official ratio?  Could you explain this a little?

[quote]

That said, I’m planning on buying a bit of silver bullion in the hope and expectation that it will be a good long term investment. If not, I will feel free to blame you. Okay? Can you please let me know your address so I can send "Mikey" to even the score if your predictions don’t work out.

[/quote]

Uhhh.. I have to go now…  You’ll find me at over at the firearms thread.

 

  • Fri, May 01, 2009 - 01:16pm

    #7
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

I’ve been pondering this as concept as well. I believe the 15:1 ratio was fixed back in the colonial era when our currency was real money. It has been much higher than that over the recent past, and near record ratios now. I read somewhere that newly mined silver to gold is in the 15:1 ratio.

In addition to your arguments we also have:

– Most silver is mined as a by-product of other metal mining activities. Many mines are shut down now. There could be a long delay in new silver if silver demand went up.

– China is moving strongly into commodities

– Silver ETFs and other paper silver holdings may be way over-leveraged. A call on those holdings could cause a real shortage problem.

– As gold goes up in price, PM investors may turn to the more affordable silver.

– As gold price goes up, jewerly manufacutrers may start to use more silver (pure speculation here)

– Silver is at a fairly low price right now

– Silver is being ‘rediscovered’ for it’s antibacterial properties (increased industrial use)

On the downside:

– Silver doesn’t get the same ‘respect’ as gold, I think due in part to its dual use as money and industrial metal

– The premiums on buying silver are much higher (percentage) than gold. This is one of my main problems with it.

– The weight to value ratio compared to gold is huge. I just bought some silver and what a difference compared to the equivalent value of gold!

But, as mentioned, the markets are  irrational. People have been saying silver is due for a major breakout for many years. I believe that is becoming more likely, especially when the economy starts moving again.   

I’m glad to see this discussion. I have posted before on it but have seen little response. I have seen more than one analyst predict silver reaching parity with gold. I’m not too sure about that, but even if it got back to the 15:1 ratio it would be a major break. I’m no expert and barely an amateur at this, so don’t make any bets on what I say. But it is intriguing.

  • Fri, May 01, 2009 - 04:17pm

    #8
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

Mr. Fri – Going back and re-reading, I don’t think it was officially set at any ratio. My apologies for bad information. I read that in current times, the price of silver partly fluctuates based on how many people think it is a store of monetary wealth. When the gold/silver standard was lifted for a fiat system (1930s), thats when silvers ratio went up to 50:1 and higher. The ratio its found in our earths crust compared to gold is 10:1 to 17:1, depending on who you listen too.

  • Fri, May 01, 2009 - 06:12pm

    #9
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

The simple answer is yes, and here is a great article that explains why.  http://www.hardassetsinvestor.com/features-and-interviews/1544-david-morga.html

  • Sat, May 02, 2009 - 03:48pm

    #10
    Peak Prosperity Admin

    Peak Prosperity Admin

    Status Bronze Member (Offline)

    Joined: Oct 31 2017

    Posts: 1613

    count placeholder

    Re: Does Silver have More Potential than Gold?

There’s another thing that hasn’t been brought up yet. Historically, silver has been "peoples" money, while gold has been rich man’s money. For everyday purchases like groceries, silver had been preferred due to its lower unit value. While the wealthy (and central banks) have realized to some degree that gold is a hedge for inflation and may become money again, most "normal people" have not had the same realization about silver. When the dollar hyperinflates and TSHTF, people are going to realize the value of silver for everything from buying milk to paying the rent.

Also about silver: my article Walmart Can Save the World and the related thread on this forum.

Viewing 10 posts - 1 through 10 (of 14 total)

Login or Register to post comments