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What are the Differences between Investing Silver and Gold?

By: Dr. Jeffrey Lewis

-- Posted 14 July, 2010 | | Discuss This Article - Comments:

The traditional rule that gold always trades within a range of 20 to 70 times the value of silver may quickly be tested as the financial markets lose their fear and again start investing in stocks, bonds and other investments. 


Silver and Gold Comparison


When it comes to protecting your wealth against financial turbulence and inflation, both metals are strong.  However, when we look at underlying fundamentals that drive consumption for both metals, we find they are very different. 


Silver and gold both have uses in manufacturing and electronics, where they are often used to coat cables and make better connections on circuit boards, electrical wiring, or virtually any product where a quality connection is important.  Both perform well, but silver performs best and is more widely used than gold.  Silver is the best conductor of electricity known to mankind, and at the current price of just $18 per ounce, the beauty of silver's uses have yet to shine.


Why Buy Silver?


The amount of silver is slowly dropping each year, as supply from mining and scrap has not kept up with consumption for years.  From electronic watches and calculators to full-scale laptops, silver is used as the best way to transfer energy from one part to the next. 


Since it is so relatively inexpensive when compared to gold, nearly all of the silver used in manufacturing will not be recovered before the device makes it to the graveyard.  Thus, in knowing this fact, we can infer that all of the silver used in manufacturing businesses is then later discarded by the consumer in such a fashion that it is too expensive to extract to be profitable.  Subsequently, the supply shrinks as it is used, and investors who own silver as an investment slowly own more and more of the silver pool by percentage with each passing year. 


Jewelry Consumption


The undisputed king of the jewelry business is gold, which makes up the overwhelming majority of all jewelry made around the world.  It is important to note that gold or silver used in jewelry rarely gets thrown in the trash like it does in electronics, even if the amount of silver in a ring is the same as in a laptop!  Why is this? 


Jewelry by nature sells for a premium to the spot price, and almost always retails for far more than its metal content.  However, as metals prices have increased, melting jewelry has become far more popular, and hundreds of tons of gold were purchased by melting companies to extract the intrinsic worth from jewelry.  The good news is that jewelry is not and probably won't ever be silver's main use, and more of it is likely to escape into manufacturing than in the small jewelry market.  Even here, silver reigns supreme over gold.


Don't Get Confused


Metals have tended to be excellent investments as hedges against inflation, but some have better credentials than others.  With its vast uses, limited supply, and relatively low price, silver is an excellent investment that will continue to not only outperform the stock markets, but also other precious metals. 

Dr. Jeffrey Lewis

-- Posted 14 July, 2010 | | Discuss This Article - Comments:

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