When people are considering whether to invest in precious metals or not, one of the first things that come to mind is whether they should invest in gold. Many give little thought to investing in silver, especially in the Western World. One of the main reasons for this is that the TV and Radio News regularly reports the price rises and falls in gold bullion, but very rarely does silver get a mention. In this article we shall briefly cover as to whether silver is a better investment than gold.

Let’s be frank, at this time of recession, few of us have large amounts of money to spare. It is sad but true. One of the main reasons as to why people look into investing in silver is because it is considerably cheaper than gold. In fact, it is currently up to 75 times cheaper per oz. Now of course, this means that you are going to get less of a “physical return” on your money since you will be spending less, but it is still offers great potential to break into investments and hopefully make a profit – especially in the long term.

At the moment, many commentators and some experts actually believe that silver is undervalued, (historically it has been around 15 times cheaper than gold and even in recent years averaged approximately 40 – 50 to 1) and thus for this reason alone, it’s investment potential is attractive. After all, one could reasonably conclude that if the relationship between gold and silver renews to historic standards, the price of silver will simply explode. (Or alternatively gold prices will have to fall to incredibly low levels).

In the silver market (and the gold bullion market for that matter) there is something known as “paper futures”. These are purchased by investors predicting future price rises and falls. This can have a  significant tendency to suppress the price. There are many silver futures currently in operation and some have put the figure to as much as 300 times the ‘paper compared to the underlying physical on the COMEX). The benefit to those who invest in silver is that if the price begins to rise, silver future owners are going to need to buy silver to correct their position. If they don’t they may face financial ruin. Any default on these papers will also show there is a silver shortage and will undoubtedly undermine the market. The result of this is that those investors who are holding physical silver, will see a considerable demand for their holdings enabling them to easily sell their investments in a rising price market.

The demand for silver as jewellery and for industry is also considerable.

For example, silver is used for:

  • Silver contacts in switches and circuit breakers for the power industry
  • Silver contacts in membrane switch panels for machinery, chemical industry processes, railway traffic controls and elevator buttons
  • Silver batteries
  • Silver circuits and components
  • Radiography – photo film
  • Cell phones
  • PC’s and laptops
  • Medical applications
  • Solar Panels
  • Various Medicinal purposes

This has been the case for a considerable time and the outlook is unlikely to differ. In fact the Silver Institute has already forecast considerable growth in some of these areas over the coming years. Unknown to most people is the fact that there are very few silver mines in the world. 70% of the ones that mine silver do so as a side product because those mines were built to extract other metals. Silver is a sort of bonus for them. Therefore there is no real way that huge amounts can enter the supply chain and especially not ‘on call’. With ‘Peak silver’ production expected to peak in either 2016 or 2017, and considerable increase in demand, may leave the Industry floundering and relying upon ‘above ground readily available stocks’ which are reported to be anything from 1 Billion – 2 Billion ounces (essentially a couple of years supply).

So is silver a better investment than gold? Well that depends on a mixture of one’s own forecast of how they see the economy going (as more than 50% of silver is used for industrial purposes, any global demand fall will result in lower prices and the opposite is also the case) and the time horizon one has in mind – many commentators believe that a 10-20 year time period should be allowed for.

Gold is certainly the metal which Governments and Central banks acquire to help support their currency with virtually zero stocks of silver held by these entities. Nevertheless, at a gold to price ratio of around 75, – traditionally well above the medium/long term average – there is indeed considerable potential for the silver price to do well in future years.