Will Silver Start to Outperform Gold?


". . .you might sleep better as an investor in gold but ultimately lose out to silver."

Precious metal fans face a conundrum in choosing to buy silver rather than gold: silver prices are more volatile but have always outperformed gold prices in previous financial crises.

So you might sleep better as an investor in gold but ultimately lose out to silver. An equal split asset allocation is one way of hedging sleep and performance.

It is notable, for example, that the correction in silver prices since the peak of March 2008 has been larger than gold. Silver more than halved before rebounding while gold lost a third in price before coming back.

Then again if you had bought at the bottom point for both metals over the past year gold is now much closer to its March 2008 peak price than silver, and you would have made more money. What to do going forward?

The gold-to-silver price ratio is now 70 compared with a range of 30-100 over the past three decades, although it has been as low as 15 during periods when silver was used as money.

History suggests silver will be the better performer, and stocks of silver are reckoned to be less than one-hundredth the size of gold reserves, so the supply and demand equation is already stacked in favor of silver. Monetize gold and silver and there will not be enough silver available and the price will go up.

There is a risk that gold and silver prices will fall as equity markets fall, or even a risk that foolish investors might send the stock market rally a little higher, but probably the biggest risk is being caught short of both precious metals when prices take off.

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