“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)
Should I Buy Silver or Gold?
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.
Here are twelve key differences between gold and silver:
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.
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.
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.
These coins look like today’s quarters and dimes but contain 90% silver
Gold coins like this one were required to be turned in to the government.
Or how about one of these $5 gold coins. They were minted from 1908 to 1916, and then again in 1929 and were in circulation until 1933.
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 jewelry, 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.
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:
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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