"Should I invest in silver or gold?"
I say definately silver, for many reasons.
First, silver has always produced a greater percentage increase during precious metals bull markets. In some precious metals bull markets, silver has tripled in price while gold has doubled. In some moves, silver rose four times while gold doubled in price. Additionally, silver has more industrial applications than gold does, with more uses being developed.
It is, for example, one of the best electrical conductors of all the metals, and as it doesn’t corrode, is used in practically all switches. “Every time a homeowner turns on a microwave oven, dishwasher, clothes washer or television set, the action activates a switch with silver contacts”, says the Silver Institute.
However, the real case for investing in silver lies not on the demand side (although this is clearly growing), but on the supply side. You see, silver really is quite rare. There are only about 23 pure silver mines operating around the world (any other new silver mined from the earth is a by-product from lead, zinc and copper mining), and overall production was flat and is expected to remain flat.
Mined silver has been insufficient to meet demand every single year for the last 15 years. According to the CPM Group, a commodity research provider based in New York, newly refined supply fell short of industrial demand by 44.5 million ounces in 2004 and will be short by another 31.4 million in 2005. This hasn’t been a huge problem because the world has been able to meet the deficit from inventories, and sales from official stockpiles.
However, today the US government stockpile is all but gone and sales from other official sources appear to be declining too (China sold over 60 million ounces in 2003, for example, but only 34 million in 2004). This means that the remaining reserves of aboveground metal held by the central banks of China, Russia and India from the melting down of withdrawn coinage are running down. In 1990, says CPM, there were around 2.2 billion ounces of silver held in aboveground stocks. Today, there are probably only about 300 million. That’s a 50-year low.
Not only has production and secondary recovery failed to meet demand each year of the last fifteen years, but aboveground supplies are critically short. Some analysts say that supply will fall far short of meeting demand over the next decade, and that much higher silver prices will be the result. According to accepted statistics, more gold rests in the vaults of the world's central banks than there is aboveground silver.
The drop in reported silver holdings around the world shows just how much the production deficit has eaten into aboveground supplies. In 1995, Comex stocks stood at 260 million ounces; today Comex stocks are struggling to stay above 100 million ounces. In 1991, estimated silver inventories in London and Zurich were 350 million ounces; today that number is closer to 50 million ounces. In 1980, world governmental silver stockpiles totaled some 325 million ounces; today, few governments hold any silver.
Many people think first of gold when the subject of "hard money" arises. Yet, more people have used silver for money than have used gold. In something like fourteen languages, the words for silver and money are the same. In the United States, gold coins ceased to circulate as money with Roosevelt's 1933 call-in. However, the U.S. Mint continued to turn out silver coins until 1965.
A final argument in silver’s favor, for those who believe in reversion to the mean, is the level of the gold/silver ratio. At the moment, you need 55 ounces of silver to buy one ounce of gold. 2,500 years ago, when coins were first made in ancient Greece, the ratio of gold to silver was generally between 10:1 and 13.5:1. In the 1930s and 1940s the ratio reached 90:1 or higher, and in 1991 it peaked at about 98:1.
For the last decade it has hovered at around 60:1. However, the long-term mean (the last 350 years) is more like 30:1, suggesting that to bring things back into balance, either the gold price has to fall, or the silver price has to rise.
Worldwide market demand for silver is growing, while supplies of silver are quickly disappearing. New high-tech uses for silver will further strain already-tight supplies in the future. World demand for silver now exceeds annual production and has every year since 1990, depleting aboveground stockpiles of silver. The U.S. government, once the largest stockpiler of silver on the planet, dumped billions and billions of ounces of silver onto the world market over the years, resulting in depressed silver prices. Today, that government silver hoard is gone, and now the U.S. government is a buyer of silver at prevailing world silver prices.
For these reasons and many more, the silver market represents an outstanding investing opportunity. And the easiest way to start is in US silver coins, specifically American Silver Eagles and 90% silver US coins.
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