“Then one of the twelve, called Judas Iscariot, went unto the chief priests,and said unto them, What will ye give me, and I will deliver him unto you? And they covenanted with him for thirty pieces of silver. And from that time he sought opportunity to betray him.” The Bible Matthew 26:14-16 (King James Version)
After a much publicized drop in the price of gold and silver earlier this year both metals are heading higher again. While gold and silver are considered precious metals (along with platinum and palladium) as well as monetary metals, there are significant differences between the two to keep in mind when deciding whether to buy physical silver or gold.
1. Central Banks Don’t Hold Silver.
Gold and silver have long been considered money. Central banks, however, do not hold silver. Most central banks hold gold as part of their reserves. Recently, central banks have been net buyers of gold. The Chairman of the Federal Reserve Ben Bernanke, however, refuses to admit that gold is money in this exchange with then Congressman Ron Paul:
Is Gold Money?
Central banks own nearly 20% of the world’s known gold. Because of this they have enormous leverage over the physical gold market as they can buy, sell, lease, hypothecate, borrow and lend gold among themselves and with third parties. Central banks have no such control over the physical silver market.
2. The Silver Market is Much Smaller than the Gold Market
The silver market is so small that one extremely wealthy person could buy an entire years’ production worth of silver. In 2012 the total silver mined world wide was 787 million ounces. At a price of $20 an ounce that is only approximately $16 billion!
The amount of gold mined annually is about 2,500 tons with a market value well over $120 billion.
In the late 1970′s the Hunt Brothers bought large amounts of silver as an inflation hedge partially because of its attractive price and also because it was illegal for U.S. citizens to own gold at the time.
This two part You Tube documentary is worth watching for historical background:
3. The Price of Silver is More Volatile than Gold
Because of silver’s smaller market size, it rises faster when the price of gold goes up and falls further when gold goes down.
4. Gold Gets Recycled in Larger Amounts Than Silver
Gold has been treasured historically and just about all gold gets recycled while not all silver does. All the gold ever mined is still in existence in some tangible form and can fit in three and a half Olympic sized swimming pools. Indeed, nearly 40% of the annual supply of gold comes from recycled gold.
Silver is prized and saved for investment, silverware and jewelery. Silver is also used in electronics because of its ability to conduct electricity. Silver is more abundant than gold (most estimates show silver to be sixteen times more plentiful than gold) and because of its lower price, much of it gets tossed and is not recovered. It is essentially consumed in electronics, CD’s, DVDS, mirrors and solar panels. Scrap silver (from jewelry, tableware, decorative items and other sources) makes up about 25% of the annual silver production.
At current rates of consumption and estimated amounts remaining in the earth, silver is projected by the U.S. to become the first element on the periodic table of the elements to become extinct.
5. Silver is Far Less Expensive Than Gold
Silver is called a precious metal but trades closer in price to base metals copper and nickel than it does to its precious metal cousins gold, platinum and palladium.
Price per ounce on August 21 2013
Copper price: $.20
6. The Price of Silver Trades Far Lower Than Its Relative Abundance to Gold in The Earth’s Crust
Silver’s lower price relative to gold has been based on its relative abundance to gold. The traditional silver/gold ratio is 16:1 but the current silver/gold ratio in price is about 60:1.
As of August 21, 2013 retail investors purchased 55 times more silver ounces from the United States Mint than ounces of gold.
Using the spot prices of gold and silver above (not the price per coin which includes a fabrication charge) the U.S. Mint has sold through August 21:
31.9 million 2013 American Silver Eagles one ounce coins worth approximately $721 million
591,000, Gold eagle one ounce coins worth approximately $803 million
Last year the US mint sold 33.7 million 2012 American Silver Eagles.
For more on the Gold/Silver Sales Ratio, click here.
7. During the Recent Smash Down of Gold and Silver, the Silver ETFs Experienced Lower Outflows than the Gold ETFs
During 2013 gold ETF’s lost about one fifth of their holdings while silver ETF’s lost just one percent of their holdings even though silver’s price declined more than gold’s.
8. Warren Buffet, Known Opponent of Gold as an Investment, Once Owned Silver
Warren Buffet is a known opponent of gold as an investment and a man clearly capable of buying an entire years’ worth of silver production. Warren Buffet once owned a large amount of silver. He sold soon after his purchase and did not participate in the massive rise in silver’s price from 2004 to 2011.
9. There are Coins in Circulation Today That Were Once 90% Silver
Up until 1965, U.S. Roosevelt dimes and Washington quarters contained 90% silver. During World War II (1942-45) Jefferson Nickels contained 35% silver. Nickels are called as such because of their nickel content. Nickels minted during WW II contained no nickel.
(c) Can Stock Photo
Silver nickels, dimes and quarters are easily recognizable and can serve as barter instruments. According to coinflation.com a silver nickel is worth $1.27, a silver dime $1.63 and a silver quarter $4.09.
10. Fifty Percent of Silver’s Demand Comes From Industrial Uses; Gold’s Industrial Demand is About 10%
Silver is widely used in the electronics and photovoltaic (solar energy) industries and about 50% of silver’s annual production goes to satisfy industry demand while the rest is used for jewelery, silverware and investment. About 10% of gold’s annual production goes to industrial uses with the rest being used for jewelry (the largest amount) and investment.
Silver’s industrial demand make its price dependent to a certain degree on global economic growth rates particularly in the electronics and solar power industries. Gold is less dependent on industry to support its price, but because a large portion of its demand comes from jewelry, a high price may cause consumers to curb their purchases or to seek cheaper alternatives like silver.
11. There Are Relatively Few Pure Silver Mines
There are many gold mines but few primary silver mines. Most silver is mined as a by product of other mining operations. In the world’s mines there a fewer known silver reserves -150 million ounces- than gold reserves – 4000 million ounces.
12. Governments and Keynesians Don’t Attack Silver the Way They Attack Gold
Gold is viewed as a threat to fiat currencies. John Maynard Keynes called gold a “barbarous relic“. Keynes and his disciples resented the gold standard because of the economic discipline it imposed on governments.
Here is Mr. Keynes Celebrating the End of the Gold Standard:
Currently India is blaming gold for the decline in its currency the Rupee and for its trade imbalance and is undertaking a series of measures to curb gold imports from taxing to outright bans on gold coin imports. Some speculate that the next step the Indian government will take is the confiscation of its citizens’ gold.
In 1933 at the height of the Great Depression President Roosevelt issued an executive order confiscating the gold of U.S. citizens. The price of gold was fixed at $35 an ounce. Gold remained illegal for U.S. citizens to hold until late 1974.
While silver has a long history as a monetary metal, it does not conjure the same visceral reaction that gold does among Keynesians and governments and has never been confiscated in the United States.
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