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Silver's Advantage Over Gold

Written By Luke Burgess

Posted July 9, 2010

If you’re like most Americans today, you’ve grown tired of hearing words like “inflation”, “national debt”, and “credit crisis”.

For years now, it’s been hammered into your brain — the fact that your government has been writing checks it can’t cash, and in the process, diluting every cent you’ve managed to store away in your savings account.

And for almost as long, you’ve probably been hearing financial advisors and so-called economic gurus telling you about how certain investments can protect you during these times of uncertainty.

Without a doubt, recent historical rises in gold prices have gotten your attention; made you think.

Maybe you’ve even started to view the jewelry in your house more as currency than personal possessions.

Perhaps you’ve even thought about buying some gold yourself… Turn some of those depreciating dollars into stable wealth by locking in at a good price.

Well, let me stop you right there.

Although gold is historically the most prominent method of storing and transferring wealth, there’s a reason why men like George Soros, Warren Buffett, and Bill Gates have invested heavily in its slightly less glamorous cousin…

I’m talking about silver.

Actually, there’re a couple reasons why right now — more than ever before — silver is not just the superior hedge against inflation

But a serious profit vehicle in its own right. And today I’m going to tell you why.

The Magic Ratio

If you average out the price ratio between gold and silver throughout history, you land on a single magical proportion: 16 to 1.

And even experts who do not subscribe to fixed pricing relationships generally agree that a price ratio of around 20 to 1 should be considered normal. What is not normal is the current ratio of — wait for it — 66 to 1!

To investors, this means one of 3 things:

1.) That gold is overvalued;

2.) That silver is undervalued; or

3.) A combination of the two.

Any way you look at it, silver’s price cannot be predicted to drop in any of these scenarios.

And since these same experts are continuing to predict gold’s rise towards $2,000, a realistic target price for silver should be between $100-$125/ ounce.

Already, that’s over a 500% gain over today’s price of $18…


Silver’s Two Faces

Silver isn’t just a precious metal; it is also one of our main industrial metals. One of the most conductive substances known to man, it’s used in everything from photography, to compact discs, to semi-conductors, to medical equipment. Basically, if something is high-tech, it contains silver.

The metal’s so heavily used, in fact, that for the last several decades, the world’s total silver supply has barely been able to keep up with demand — even though the 20th century saw historic production increases.

Demand ramped up in the last quarter of the 20th century to the point where, for almost two decades (between 1998 and 2007), silver was in a fully-fledged global deficit.

It wasn’t until the worst economic disaster in three generations that supply finally dropped to below production levels.

However, with photography alone consuming 128 million ounces of silver annually as of 2007 (that’s more than 3 times the US’s total Silver reserve), and other industrial processes accounting for another 312 million ounces, the world’s total available silver (both produced and hypothetical) is steadily — and irretrievably — decreasing.  

So while gold is constantly being transferred based on price fluctuations and demand alone… silver, as an element, is actually vanishing.


The Broadest Options

With China and India buying up silver at unheard-of rates (Chinese silver demand tripled between 2004 and 2007), the industry has had no choice but to create new ways to own the metal.

There’s never been so much variety in the way you can own silver as there is today.

For those looking for that wealth-saving hedge, there are a number of silver bullion producers that are minting high-quality, high-purity coins for minimal premiums. A perfect example of this is the 1 ounce Mexican Libertad.

However, for those interested in riding silver’s imminent rise will look for something less tangible, like silver ETFs, or, the most aggressive option: silver mining stocks.


And it’s that last option that I wanted to talk to you the most about.

Because with so many people piling into gold exploration companies for all of the reasons mentioned above, the case for silver is just that much stronger.

With the magic ratio currently at such a disparity — 66 to 1 vs. 16 to 1 — those moving into silver exploration today stand to make about four times what their counterparts can expect to cash in investing similarly in gold.

Sounds nice, I know… And the fact is that investing in silver mining right now may not just be the most profitable angle to take with this most consumed of precious metals — but also the easiest.

To learn more about the only silver investment you’ll need to make this year…

Good investing,

Luke Burgess

Editor, Wealth Daily
Investment Director, Hard Money Millionaire