For 150 years or more, in American History, the ratio between gold and silver, was 16 to 1. In 1980, when Bunker Hunt was attempting to corral the world’s silver supply, and prices went sky high on both gold and silver the ratio between the two was 16 to 1. In other words, the price of one ounce of gold, would buy 16 ounces of silver. A month ago, the ratio was over 77 to 1. This morning it is 61 to 1. While both metals have gained in dollar prices, silver has gone up 16% faster than gold. The ratio is now 61 to 1, and reducing. Will a ratio of 16 to 1 be achieved? No one knows, but surely 30 to 1 will be, without doubt. In my opinion then, based upon ratios alone, silver will advance in dollar prices, twice as far as gold. This makes silver a better investment than gold, if it goes up percentage wise, twice as far as gold, doesn’t it? I think so, with a couple of exceptions and possibilities.
When tragedy strikes, or disaster occurs, people think of gold, not silver. Gold is a purely investment metal, whereas silver is both an investment and industrial metal. The first coins ever struck in history, were of silver, so both metals are precious, coveted, and desirable. Silver can, and does disappear, when used. Some photographic and dental silver is recovered, but not all. Some silver, when used in computers or other electrical devices, may not ever be recovered. Most of the world’s gold is still around, even if it is at the bottom of the ocean, or in some ancient Egyptian’s tomb, which has yet to be unearthed. If the terrorists struck tomorrow, I think gold would instantly go to $500, and leave silver behind briefly anyway. Safety and gold are mental partners to most, whereas silver and safety, do not come to mind as a security item except to you readers of this.
There is far more gold around than silver, and silver is being used for ever more things, even as a wood preserver. Hospitals are spraying silver solutions on their heat and air conditioning ducts, as germs cannot survive on silver. If low, or non-resistance wire ever becomes on line, it will take thousands of tons of silver to manufacture it. Silver is a wonderful electrical conductor. The US government used to possess thousands of tons of silver in its vaults, and now has not a single ounce, other than what it buys on the open market each week, for the manufacture of its Silver Eagles. The Comex, regularly trades about 350 million ounces of non-extant silver, and if everyone who holds contracts, took or requested delivery, silver’s ratio to gold would be about 10 to one, probably. Why the Comex allows trades in a material that doesn’t exist, is more than I can understand, and other’s figuring either.
I have a couple of clients, who have been trying to take physical delivery of their 5,000 ounce silver contract for many weeks now, and they have been unable to get the physical silver delivered to them. Other clients, have allowed me to buy the Comex silver stored in New York banks, and converted into hundred ounce bars, without any problems. Are they reluctant to part with what little physical silver they have? It is estimated that the Comex, has less than half of the physical they allow to be traded daily. If the guillotine falls on this shady affair, the price of silver will be similar to a 4th of July rocket.
The price of silver today, at even a shade under $7 per ounce, is far from its cost of production, in all but the largest, richest, and best developed mines in the world. The price of copper has gone from roughly $70 to $115, and silver, which is a usual by-product of copper mining, hasn’t followed, percentage wise. Why? I don’t know, but can such a situation continue? If silver “catches on,” or is needed, like copper evidently has, can silver remain at under $7, or will it blossom? I think up, without doubt. Silver has been in the doldrums for far too many years, and its time has come.
What are silver’s disadvantages? First of all, it requires a lot of storage space, and an apartment dweller, or safe deposit box user, will find silver storage, a large problem. It is big and heavy, and requires a lot of space to store. Eleven Gold Eagles, will fit in the palm of your hand, and can be secreted in a thousand places. The same amount of dollars, which bought the eleven Gold Eagles, will buy a “bag” of US silver dimes or quarters (715 ounce of pure silver), weighs in at 56 pounds, is damned inconvenient to store and even lift. I prefer the pretty ten ounce silver bars, packed ten to a nice, easy to store and heft box. On a per ounce basis, they are higher an ounce than a “bag,” but far easier to deal with, and very beautiful, as they are “extruded,” (shiny), and each one is wrapped in plastic to keep them from tarnishing. Yes, silver does tarnish, and gold doesn’t.
Another disadvantage of silver, is that its “spread” is far larger than gold. Like a share of stock, the “spread” on an item, is the difference between the price you buy it for, and the price for which you can sell it. A Gold Eagle or Krugerrand, has a spread of about $5. If you buy it for $425, you can sell it for $420, in other words. Silver’s spread is as high as 50 cents an ounce. Why? Because it is heavy, and heavy things cost a lot to ship. That’s the only reason, and has nothing to do with value. The weight and cost to ship, isn’t just to get it to you, but the entire shipping cost from mine, to mill, to smelter, to manufacturer, to distributor, to you. Heavy stuff, and this is responsible for the high spread. In other words, for you to break even, aside from cost to purchase, you need to see silver rise 50 cents an ounce, to “break even,” on bars, Silver Eagles, and rounds.
This gets us back to the “bag” of US silver coins. While 10 and 100 ounce silver bars cost 50 cents over spot, “bags” cost but a few cents over spot to buy, and when you sell them, the spread is half of other forms of silver. Why? Simple. There is no manufacturing cost. The silver coins were all made 60 years ago and before, whereas a ten or hundred ounce bar is new, and the cost of manufacturing is built in. As I write this, on Thursday, Feb 19th, a “bag” is $4833, or $6.76 per ounce of silver, a mere six cents over spot. The “bid” is $4633, or $6.48 per ounce, or a 28 cent “spread,” vs. a 50 cent “spread” for bars. If you can lift ’em, and store them, “bags” are the best buy, by far. Some ask if the “bags” will eventually be all bought, and command a premium, due to the their lack of availability. Possible, but it hasn’t happened yet. I still like the ten ounce bars best.
Other forms of silver, are “rounds,” and Silver Eagles. A silver “round,” is a one-ounce coin with a beautiful design, made by a private mint. They’re 55 cents over spot. Then there is the US Silver Eagle, which is a dollar per ounce higher than a round. The best way to buy Silver Eagles, is in lots of 500, which come sealed in a heavy green plastic box, made at the US mint at West Point, New York. The box has a lead seal on it with its date. Inside are 25 tubes of 20 Silver Eagles each. If you never open it, and the seal is intact, the Silver Eagle goes up in price, because of its date. Not much, with the exception of 1996 ones, but a little. Open the box, and don’t worry about the seal, if an extra 50 cents an ounce in re-sale value doesn’t bother you, but there are collectors out there, who will pay a small premium for sealed mint boxes of prior years. The lead seal has the date on it. While you are paying a lot extra for Silver Eagles, when you sell them, you get that premium back, so that is no worry.
Is silver for you? With its weight and spread, it may not be, but there’s very little silver around, and its demand constantly increases. Consumption is twice its production currently, and that is not the case with gold. It may tarnish, but it has been historic money for thousands of years, as has gold. Silver has a lot of uses other than jewelry and security, and it will always be in demand. Its disadvantages are insurmountable for many, but if you have the space and patience, I feel your rewards will be high. Protect yourself.