Is Gold or Silver bullion a better investment?

Discussion in 'Metal Futures' started by DrPepper, Oct 27, 2009.

  1. It is probably a good idea to buy both gold and silver as a hedge against inflation and a further deterioration of the dollar, as well as to protect one from the small but real possibility of a financial catastrophe.

    However, if you wanted to buy more of one than the other, which do you think is a better investment?

    More people seem to talk about gold and its price has gone up more relative to silver. Historically, gold is the only true currency that has survived multiple civilizations. However, the government has outlawed and seized gold before. I do not know if they did the same thing with silver.

    Silver is much cheaper and easier for the average person to afford. If there was a panic in society and people rushed to buy gold and silver coins, I could see more people trying to get Silver Eagles for $20 than Gold Eagles for $1000. Silver would also be a better currency of exchange to go shopping at the grocery store or Wal-mart if dollars became worthless. In addition, silver has some industrial uses.

    So, if you think that gold and silver are an important part of a diversified portfolio, which would you buy more of now?
  2. Nothing new here, but as an investment vehicle I would allocate half of my precious metals exposure to bullion, and half to the stocks. At least with the stocks, you have an earnings streams (possibly w/ dividends) backing your investment up, whereas the metals give you no dividend to speak of. The stocks give you decent leverage and are very liquid with minimal transaction costs, as well.

    Also, miners will do well in a bearish metals trend, if its an environment where costs fall faster than metal prices. So in this certain deflationary trend, your gold stocks will do well with margin expansion. The miner bet is actually a spread bet, one where you hope metals outperform other measures of inflation.

    As far as investment quality, silver is relatively cheap to gold as far as recent ratios go, but it is important to remember how far we've recently come. There's a lot of outright price risk here. I'm positioned to benefit from inflation, but I fear the real higher probability is of deflation near term ... and loss resulting from entering here is more likely than gain if recent history (volatility of the last 2 yrs) is any predictor of future returns.
  3. zdreg


    deflation is what the the US would like you to think. the goal of obama is to turn the country into a nation of asset less serfs. best way to do that is to inflate the currency out of existence.
  4. agreed, but for any 'informed' investor it is much easier to take the inflationary bet in the face of current monetary policy. The hardest trade to make right now is to buy 30 year treasury bonds. The easy trades to take usually aren't the profitable ones, as we all know (especially in the near term)...
  5. zdreg


  6. Depends on your 20-20 Hindsight...
  7. billdick


    Thread asks: Is gold or silver the better investment?

    I would say Neither, TIPs are better, especially if held in a tax defered account, so not yet collected income avoids current year taxation.

    Precious metals offer only possible appreciation and historically over almost any period of a few decades do NOT hold their purchasing power as well as stocks etc.

    They are a risk to life if held at home and pay "negative interest" if held in a bank deposit box. If you only have a piece of paper saying some company is holding X oz of gold for you; how do you know that is true?

    Historically paper money begain this way. Some wealthy people had gold and a secure safe to store it in. Others asked them to keep their gold in that safe too and were given certificates of ownership to it. The safe owner soon realized he could safely issue more certificates than he had physical gold in the safe. These certificates circulated. Government were quick to see the merit in this and issued their "gold and silver certificates" too.

    People and governments seldom discontinue profitable operations the can get away with.
    I bet you and others better not all ask for "your" physical gold at the same time.

    If you think some government agency and / or auditor is making sure there are no more certificates than gold, then Mr. Madoff and I have a bridge in Brooklynn we will sell you cheap.

    Now it is true that the government can "fudge" a little on the CPI inflation adjustment to the principle of the TIP, but one must remember that the CPI is also what adjusts the Social Secuity payments. Every year the number of people collecting S.S. is now an increasing fraction of the population. (AARP, helps make sure they vote at a higher fraction than the younger folks too.) Thus, the fudging of the CPI will not be much without many Congressmen failing to get re-elected.

    Also China may soon be buying TIPs and they have a "financial cannon" aimed at the USA they could fire if TIPs they own are not properly inflation adjusted. Treasury may be forced to sell more TIPs and has already announcd intention to issue longer term TIPs.

    Also many studies show that for typical expenditure of a healthy retired person, the CPI actually overcorrects for their personal inflation index. (Their kids are already college graduates, they may have fully paid off home mortgage, don't eat out much, have more clothes than they need in the closet, etc.)

    SUMMARY: TIPs are better than gold as inflation protection.

  8. I share many of your biases but think it needs to be pointed out that the deflation in the thirties was not across the board. Gold and silver were not suffering from a lack of demand as were almost all other assets. In fact the existing free exchange of dollars for gold was dangerously draining the Treasury of its gold stock even in the midst (and as a result ) of a worsening deflationary spiral. The reality of The Great Depression was that many preferred to take their chances with specie rather than fiat.

    Roosevelt made private ownership illegal, then called (ordered a confiscation of) the gold at $20.67 per oz and then quickly set a "world price" (excluding US citizens and residents) of $35 per oz.

    At a single stroke, Roosevelt increased the government's gold assets, stabilized the monetary system and increased wholesale prices by more than a third. Using "asset inflation" -- gold and silver being the assets -- the government's action amounted to the most inflationary day in US and in some senses world history.

    Roosevelt's confiscatory order (Executive Order 6073) was timed to coincide with the reopening of the banks following the four day "bank holiday" I hate to defend his quasi legal (at best) actions but the package was instrumental in saving the banks.

    Those that equate deflationary times with declining gold prices are overlooking the great deflation of the 30's that was punctuated by a swift inflation that changed the equation.

    Gold went up 40% in a day and allowed the US Treasury to fix the price there for four decades. It may have gone up 50 or 100% or more had the New Dealers not stemmed the flow from the treasury as skillfully as they did. Say what you will about his adviser's politics but they were a brilliant bunch.
  9. If you are concerned about preservation of wealth, purchase a small amount of both gold and silver bullion.

    There are many arguments both for and against precious metals.

    The point of this position of physical is not to get rich but a very small hedge against uncertainty.

    If your wrong--so what? It won't make or break you, it probably won't save you, but you may sleep better.

    Pass it on to your children; they'll know you were thinking of them after you're gone.
  10. I agree that a little of both is a good idea. However, I was also reading that the ratio of silver to gold prices varies between 30-60:1. Currently, the ratio of silver to gold is about 63:1. I believe this is because gold is in the news right now, but there is much less discussion about silver. A large coin shop owner today told me that everyone is going for gold bullion now, not silver.

    I was talking to a woman today who is a middle class wage earner. She was interested in owning some gold or silver. However, she said she was not interested in paying over $1000 for a one ounce gold coin. She did like the idea of buying silver American Eagles for less than $20 each. I believe that, if the government continues to print money (which they will), if the value of the dollar continues to decline and if inflation accelerates, there will be a greater public interest (panic?) in precious metals. The average middle class American will probably go for silver and it may rise rapidly in comparison to gold.
    #10     Oct 31, 2009