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Gold Versus Silver

Which is better? You decide

We believe that silver has more profit potential than gold in the long term. However, we also know that silver is more volatile than gold. So let's take a look at the various arguments of why gold is a good investment, why silver is a good investment, and how gold and silver compare to each other.

ReasonWinnerSilver DetailsGold Details
Current use as moneyGoldSilver is neither used as money, nor as a reserve by governments. As such, it does not receive much value for those purposes.Gold isn't currently used as money, but is used as reserves by governments. As such, it is given a high value.
Value due to BeautyNeitherSilver was originally used in part because of its beauty, that could not be matched with other metals. However, today inexpensive silver plating is virtually indistinguishable from pure silver.The same holds true for gold.
Silver/Gold RatioSilverThe silver/gold ratio is how much silver gold can buy. As of , it is 0.00:1 (meaning that an ounce of gold will buy 0.00 ounces of silver). Historically, this has been about 15:1 (see explanation or graph), and came about in diverse geographic areas, suggesting that a 15:1 ratio is 'normal' (assuming that silver and gold are used as money). There have been roughly 10.48 ounces of silver mined for every ounce of gold (currently, it is 8.52:1), which likely accounts for why for centuries the ratio was about 15:1. If for some reason the silver/gold ratio returned to 15:1, silver would increase in price significantly. It could be argued from the silver/gold ratio that silver no longer has monetary value, and therefore the ratio could continue to increase.
Ounces of Gold + Silver ever minedDebatableHistorically, about 10.48 ounces of silver have been mined for every ounce of gold. This backs the idea of a 15:1 silver/gold ratio (presumably, the idea was that on average people would have half their wealth in gold, and half in silver). It could also be argued that since silver is also an industrial metal (I.E. a lot is consumed, never to be seen again), the silver ratio should be lower than the 10.48:1 mined ratio. If people desired equal values of silver and gold, and silver and gold were distributed evenly, there would be about an 10.48:1 ratio (assuming silver used industrially could be used; if not, the ratio would be more in favor of silver). This would result in a {550%} increase in the price of silver (or corresponding decrease in the price of gold).There is a lot more silver mined than gold, and therefore gold should be more valuable than silver. That's pretty clear (unless there are other extreme factors involved).
Ounces of Gold + Silver currently minedSilverThe best estimates show 680.900 million ounces of silver mined per year in 2008, and 79.895 million ounces of gold mined per year (per GFMS Ltd.). That works out to 8.52 ounces of silver mined annually for every ounce of gold, which suggests that silver should be priced at about 1/8 the price of gold, requiring silver to rise about about {750%} to reach it.Again, it could be argued that so much more silver being mined than gold justifies golds higher price.
Previous HighsSilverSilver's highest ever price was right around $50/ounce (it traded over that, but the daily settlement price was slightly lower). As of this writing, silver is trading for 30% of that price, meaning that silver would have to go up 235% to reach that price.As of this writing, gold is trading higher than its high of $850/oz on January 21, 1980.
Previous Highs - Inflation-adjustedSilverSilver's inflation-adjusted high is about $130, over 8 times the current price as of this writing. In other words, if we hit an inflation-adjusted high, silver would be at $132, and go up over 700%.Gold's inflation-adjusted price is about $2,275, about 2 times the current price as of this writing. In other words, if we hit an inflation-adjusted high, gold would be at $2,275, and go up over 100%.
Roman paySilverAccording to Wikipedia, a Roman soldier would typically be paid 1 denarius per day of work, equating to at least US$58 (based on minimum wage). At between 3.4-3.9g per coin, that works out to $462 to $530 an ounce. These are just rough estimates, though!The Aureus was about 7.3-8g of gold, and equal to 25 denari. That works out to a silver:gold ratio of about 11-12:1, or gold being valued at roughly $5,000 an ounce (based on the labor it could buy). These are just rough estimates, though!
Bulk silver/goldSilverThe largest known stockpiles of silver amount to less than 1 billion ounces (such as Comex warehouses and the SLV ETF). If someone (perhaps a government) wanted to buy, say, 100 million ounces of silver, there would be nowhere to buy it at once. It would require buying it on the open market, raising the price of silver in the process.There are numerous stockpiles of gold; the governments of many countries have plenty of gold on hand. To raise the price of gold, governments would need to add to their stockpiles.
Potential Price ManipulationBothThere are people who claim that the price of silver (and gold) are manipulated to the downside (I.E. the price is lower than it really should be). There is evidence that suggests that this could be the case (either the 'conspiracy theory' version, or just simply that computer investment programs are unintentionally keeping the prices down). If this were true, it could benefit the prices of silver and gold.Same as with silver.
Underlying Face ValueSilverYou can easily buy 1 ounce silver Canadian Maple coins that, at this writing, are guaranteed not to lose more than about 68% of their value. Similarly, 40% U.S. Kennedy Half Dollars are guaranteed to be worth US$.50 each, and contain 4.6g of silver each, and at current prices guarantees that you cannot lose more than 80% of your investment. Of course, if silver prices ever did get that low again ($3-$5/oz), these coins could be sold at more than face value, as they likely would sell for a fairly high premium. And, this argument only applies if you buy silver coins with a high face-value-to-silver ratio.Right now, U.S. Gold Eagles have a face value of approximately 5% of the value of the gold, meaning that your investment would have to drop about 95% for the face value to become a factor.
Investment Demand (ETFs)DebatableAs of this writing, the value of the largest gold ETF (GLD) is 7.75 times as much as the largest silver ETF (SLV) ($37.57B vs $4.85B). If people invested as much in silver as gold (by selling some gold and buying silver, in the ETFs), that would result in $16.36B invested in silver, which would require buying 1.1 billion ounces (likely more than is currently available), which would drive prices much higher (Warren Buffett's purchase of 130 million ounces in 1997-1998 caused the price to spike to 80% over 7 months).Gold investors could simply argue that gold is more valuable than silver, and more perceived as money than silver, and therefore one should devote a much smaller amount of their precious metals investment to silver.
Return to Gold/Silver StandardDependsIt may be unlikely that we would return to a gold/silver standard. But if we did, and silver was part of it (bi-metal), and all gold and silver ever mined were divided evenly among everyone, there would be 6.4 ounces of silver per person, and .6 ounces of gold per person. That's if all silver ever mined could be obtained for coinage. Today, a $1,000 silver investment would get you 10 times that 6.4 ounces.This also shows that gold is very rare, with less than an ounce per person to go around.
Available Gold and SilverSilverMost silver that has been mined has 'disappeared', either into products, or even investments. Most experts would be amazed if a person or organization could obtain even 10% of the silver ever mined (4-5 billion ounces). The price spike after Warren Buffett's 130 million ounce purchase helps confirm this (if there were 40+ billion ounces available, buying .3% would not have had such a major impact on the price).About 11% of the gold mined each year is used industrially (compared to 62% for silver), and much of that is eventually recycled. As a result, most gold ever mined is still available (only 2% is unaccounted for).
Stockpiles of gold and silverSilverThe best estimates are that there are roughly 6 billion ounces of gold that could be sold without mining (943 million ounces by our count in government stockpiles and ETFs), but perhaps a few billion ounces of silver that could be sold without mining (482 million ounces in government stockpiles and ETFs, by our count). So there may be less silver available for sale than gold! That would suggest silver prices roughly equal to gold prices, resulting in a whopping 6600% increase in the price of silver!n/a
Government StockpilesDebatableThere are nearly no government stockpiles of silver at present. The United States used to have about 3 billion ounces of silver, but has gotten rid of it all. If governments want silver at some point, it will significantly increase demand, and therefore the price of silver.Plenty of governments have plenty of gold (nearly 1 billion ounces total, per Wikipedia. This helps increase the perceived value of gold versus silver.
ETFsSilverThe biggest silver ETF (SLV) has a market cap of $4.9B (as of 29 Jan 2010). As of 22 Nov 2009, total gold ETF holdings were 56.4 million ounces, worth about $64B. That's 13 times as much money in gold as silver, suggesting that silver prices would go much higher if equal amounts were invested in gold and silver.The same stats could be used to say that silver no longer has monetary value.
Economist Adam SmithSilverIn Wealth of Nations, the famous economist Adam Smith stated "We ought naturally to expect, therefore, that there should always be in the market, not only a greater quantity, but a greater value of silver than of gold." He is saying that the value of all the silver in the world (I.E. the market capitalization) should be higher than that of all the gold in the world. In other words, the silver:gold ratio should be less than the 10.48:1 ratio of silver to gold ever mined.Of course, those words were written in a time of bimetalism; since then, there was a gold standard and then the current fiat system. As a result, silver is in less demand than it otherwise might be.
Retail ShortagesSilverIn March, 2008 there was an unprecedented shortage of 'retail silver' (physical silver in forms that all but the largest investors typically purchase). Most large bullion dealers were out of most or all of their silver (and their suppliers were out, too) for a few weeks. Again, in August, 2008, major shortages occurred. This could be attributed to the silver market being small, but if shortages of retail silver haven't occurred in the past, it's a sign that either [1] there is less silver available than before, or [2] investors are purchasing more silver than in the past, or [3] dealers were reducing their inventory (which doesn't make business sense). As one of these shortages began, The Tulving Co started selling 1000 ounce silver bars, suggesting that it was one of the few forms of silver that could be obtained (they are rarely sold in the retail market).There have been minor retail gold shortages, but not to the extent of the silver shortages. The argument that silver shortages occurred because the silver market is small don't help -- if the silver market is so small, it would take less investor demand to cause prices to rise.
Financial Advisors Recommend Precious MetalsDebatableMost financial advisors recommand having precious metals in a diversified portfolio (typically 5% to 10%). Most people do not. Over $10 trillion is invested in stocks. If 5% of that were in precious metals, split between gold and silver, that's $250 billion each that would be moved into gold and silver. At today's prices, that would buy over 16 billion ounces of silver, which would be impossible to find, forcing the price up drastically.Doing so would also create demand for 250 million ounces of gold, but that demand could be met if needed by government selling (or, the price of gold would rise -- but not as much as with silver).

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