Gold get’s all of the press and attention. It’s the precious metal that represents the entire category of commodities. There’s good reason for that. Even so, it turns out that silver might be a better investment.
Gold – World’s Oldest Currency
It may not be the oldest in the sense that it was the first used. But it certainly is the oldest currency out of all of the currencies that we use today.
From about 5,000 years ago up until the world got off the gold standard in recent history, it was used as the world’s primary currency. Virtually all nations used it as the standard by which they valued their paper currency.
For example, in the United States, paper monies were simply notes to guarantee a specific amount of gold.
Since gold has been the highest valued currency since ancient times, it still has that reputation and it still plays that role.
Silver – Just As Old
Silver has been used as long as gold has. But it has always been the baby brother to gold. It was coined and used as currency just like gold was, but it was valued a lot less by weight.
That is still true today. Gold is priced significantly higher than silver. So then why would we say silver might be a better investment?
Silver Is Less Volatile
Gold is very sensitive to world events. It is closely tied to the US dollar and world stock markets.
Whenever there is a financial crisis, gold skyrockets. When the economy recovers, it tends to crash.
Hedge Against Inflation
It also has the inflation hedging qualities of gold. When I say that, many investors use gold to fight inflation. Inflation may go up on average of 2-3% annually and the value of gold has historically gone up more than that. Well, silver has that same benefit.
In addition, just like gold, there is a scarcity. One of the reasons inflation is expected to rise at enormous rates is because of how the United States Federal Reserve as well as other western central banks like the Bank of Japan and the European Central bank are printing money.
Ever since world currencies got off the gold standard, it gave complete freedom to central banks to print as much money as they wanted. It doesn’t take a genius to know that the more you print, the less valuable each unit becomes.
The Federal Reserve has embarked on a campaign called quantitative easing. This is a program in which they print money, then buy up bonds to flood the market with US dollars. They print the money out of thin air. How is that not going to catch up with them and us?
Unlike today’s world currencies, you can’t print gold or silver. You have to find it and then mine it. That means there is a scarcity. That also means that a central banker can’t control the value of gold or silver. But they can control the value of their own currency.
Silver Has Intrinsic Value
When I say silver has intrinsic value, I mean that silver actual has what they call utility beyond the fact that it’s a precious metal.
Let’s take gold for example. What can you actually use gold for? In actuality, not much. It’s just pretty so people make it into jewelry. For the fabulously wealthy, they may use it to plate their faucets and shower heads. King Solomon had so much gold around, he used it to plate his dishes and silverware (or goldware).
In today’s world, gold doesn’t have a lot of uses outside of jewelry. Other than that, the value people place on it is arbitrary. That means the only reason it has value is because a bunch of people say it does. That’s it.
Silver is a different story because it turns out that is has a lot of modern uses, beyond just jewelry.
Utility of Silver
Silver has a ton of uses. Do you use any electronic devices? Do you think the manufacturing of electronic devices are on the decline or rise? The answer to those questions is a resounding yes and it will continue to be manufactured at an exponentially fast rate.
Well, many electronic devices use silver as a hardware component. As it turns out, silver is highly conductive, even when it has tarnished.
Right now silver is used in most computer keyboards. Do you think there will be more or less keyboards produced this year? How about next year?
Also, silver is used for things like RFID antennas. RFID stands for radio frequency identification. This a technology where you tag devices, machines, animals and even people and you can track it, get data from it and analyze it.
The use of RFID is growing exponentially. For example, retailers are starting to put RFID tags on individual pieces of clothing to gather data. The demand for silver will grow as this industry grows.
In addition to the many industrial uses, it is also being used in the fields of biology, medicine, musical instruments, and even clothing.
Gold cannot and does not claim all of the very practical, everyday uses above. It is simply jewelry or a reserve, nothing more.
I believe the growth in technology and manufactured products will also increase demand for silver, making it the more valuable precious metal over time.
I suspect that once the world financial system and economies begin to recover, gold prices will begin to decline. I’m sure silver will follow that path to a certain extent. But because there is real usage for silver in a way that it ties its industrial and commercial demand to the health of the world economy, I think the value of it will continue to climb.
That is why I like silver better as an investment than gold. Silver may not rally as hard and there may be fewer opportunities to do short term trading, for long term value investments, I believe silver is the way to go.