Gold or Silver? A 2017 Perspective - Jeff Nielson

For both novices and experienced precious metals investors, the question “gold or silver?” still has relevance today. Experienced precious metals investors have already heard that according to almost every fundamentals metric, silver is more undervalued than gold, and thus a better value for the dollar.

But these same investors have been hearing this message for many years. They look at prices today and see the silver/gold price ratio at a ludicrous level of nearly 80:1 – a ratio that has increased, not decreased in recent years. Some readers, even ardent precious metals bulls, may now have become Skeptics concerning silver.

Back in the real world, however, for more than 4,000 years the silver/gold price ratio has averaged 15:1. This reflects the supply ratio of silver to gold in the Earth’s crust: 17:1. With silver even more precious today because of its numerous, important industrial applications, and with most of the world’s silver having been literally consumed, this price ratio should be below 15:1, not at the current, insane level.

The argument in favor of silver is fundamentals based, and thus value based. For investors with limited funds or who simply seek maximum appreciation potential, silver is the clear winner. The retort from the Skeptics is obvious: if silver is such a great value, then why are prices not already reflecting this?

Regular readers know that this question has been answered before, from different perspectives, on multiple occasions.

1) We no longer have markets. Instead, a banking crime syndicate ( the One Bank ) has hijacked our markets, and replaced them with a computerized price-rigging operation .

2) Supply/demand data going back well over a decade indicates that the silver market would have already imploded in an inventory default – unless some Secret Stockpile existed to bleed more supply into depleted warehouses.

Skeptics will consider this to represent additional ammunition.

If all markets are rigged, all of the time, the price of silver will never be allowed to rise toward its fair market value.

If some (massive) Secret Stockpile exists, the bankers and their allies will never run out of additional supply to feed onto this market.

The rebuttal to those arguments is elementary.

a) Computers can’t manufacture silver. Industrial end-users of silver can’t use the paper-called-silver which the bankers trade in their fraudulent ‘markets’ to manufacture their products. When the world runs out of silver, prices must rise – to whatever multiples of the current price are necessary to bring the market into surplus and stabilize the supply chain.

b) The silver market has had a continuous supply deficit for at least 30 years. All stockpiles are finite. A previous commentary has estimated that it has already taken at least one billion ounces of stockpiled silver to prevent inventory default. The possibility of stockpiles that are greatly in excess of that amount is dubious, at best.

What is a fair price for silver, today? An older piece estimated that number to be $1,000/oz (USD). But even that number is artificial, since it presumes that our paper currencies still possess value. They don’t .

So, everyone should buy (and hold) silver. Case closed? It’s not that simple. Investors in the yellow metal can supply arguments which favor gold over silver.

i) More widely recognized as “money” (especially in the Western world)

ii) More compact (more valuable), and thus

iii) More portable

iv) Stronger demand at present

Part of the reason why the One Bank has been able to pervert the price of silver to such a ridiculous extreme in its crooked ‘markets’ is through the success of its Western propaganda campaign. Silver is the Peoples’ Money . Yet most of the people in the Western world no longer even recognize silver as money.

For holders of precious metals who anticipate some crisis where we would want or need to use our bullion as money (currency), in the early days of such a crisis gold would clearly have superior liquidity. It would likely take weeks (months?) before the need for silver as money and currency would begin to filter through the psyche of Western populations.

Some especially rabid silver bulls will argue that the price of silver will (or at least should) exceed the price of gold at some point – due to the radical depletion of silver stockpiles and supply. However, even most silver bulls (this writer included) expect the price ratio to always remain in gold’s favor.

This means that for readers who have limited storage (hiding?) space, gold’s superior intrinsic value means it could be the more practical choice. Similarly, for any reader who can imagine being forced to flee their domicile, or even their jurisdiction, gold’s superior value makes it more portable.

At present prices, precious metals investors would require a suitcase full of silver to equate to a pocket full of gold. And that suitcase better be on (strong) wheels, since very few readers would be able to carry such a suitcase.

Then there is demand, which currently favors gold. What about all of silver’s “industrial demand”? The Silver Institute (a somewhat dubious source) estimates industrial demand to represent 55% of total, annual demand (1.03 billion ounces), or roughly 570 million ounces.

However, the gold market now has an important source of demand which is lacking in the silver market: gold-hungry central banks . These are (generally) Eastern central banks who understand the paper currency Ponzi-scheme which has been created by the One Bank.

So far, 2017 is trending towards an off-year for central bank purchases, with current buying representing an annual rate of demand of only about 300 tonnes. Even then, if we factor in the supply ratio (17:1 in the Earth’s crust), this equates to just over 5,000 tonnes of annual silver demand.

By coincidence, that number equates to average annual imports of silver into India, the world’s largest market for silver imports. Central bank purchases of gold represent a huge source of demand. And unless/until we return to a world of Honest Money (and honest monetary systems), it is a reliable source of demand.

What would be a fair price for gold, today? In a world with $1,000/oz (USD) silver, a price of gold around $10,000/oz seems rational. As already noted, this is still an arbitrary number in a world of worthless paper.

Better value (silver)? Or, superior liquidity in the event of a crisis (gold)?

Especially high net-worth readers may simply prefer the convenience of gold. Apart from that group, the arguments which favor these metals as investments and safe havens suggest that readers should hold both.

Gold (at least at present) is still the ultimate Safe Haven. It represents a level of security which silver cannot match, based on relative value alone.

Hold at least some component of silver, since no one can truly predict the length and severity of any economic crisis – other than that such a crisis is not only likely, but imminent. We may need to be storing our wealth in the precious metal with the greatest potential for appreciation to weather the Storm that looms ahead.

Equally, the longer any crisis persists, the greater the likelihood that silver will reacquire its status as the Peoples’ Money, even in the silver-blind West. Recall that the long-term price ratio (15:1) actually exceeds the supply ratio (17:1) – in silver’s favor.

This indicates a slight preference for silver over gold among humanity, in relative terms, measured over millennia. This is just another way of saying that throughout human History, it is silver – not gold – which has possessed slightly superior liquidity.

In any brave, new world of Honest Money, readers will almost certainly be very happy to have some silver to go with their gold. Gold or silver? Gold and silver: two metals with different strengths, different uses, but (relatively speaking) equal value.

Jeff Nielson is co-founder and managing partner of Bullion Bulls Canada; a website which provides precious metals commentary, economic analysis, and mining information to readers and investors. Jeff originally came to the precious metals sector as an investor around the middle of last decade, but with a background in economics and law, he soon decided this was where he wanted to make the focus of his career. His website is www.bullionbullscanada.com.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.