Several reasons exist to love gold right now. From the twin specters of a weak dollar and commodity inflation, to the recent all-time highs north of $1,430 an ounce, to returns that doubled the broader market in 2010.
Yet investors who focus on gold and ignore silver could be missing an even better bet. Demand and performance numbers show that silver is beating gold handily right now and has been for a while. What’s more, a look at the uses and possible supply bottlenecks of silver shows that this metal could have an upside gold may not enjoy in the New Year. While both gold and silver have rolled back recently — a -5% decline for silver and a -3% decline for gold since 12/31 — there’s no doubt many investors are considering the drawback little more than a pause before the commodities skyrocket once more.
Don’t be fooled by gold’s glitter — here are five reasons silver may be a better play for your portfolio — and several investments to capitalize on the metal’s run.
Silver Performance, Both Recent and Long-Term
Silver has lapped gold’s gains better than three times over the last year, with appreciation of about +79% compared with +24% for gold. Silver also has better long-term performance, with three times gold’s run in the last 20 years. Specifically, silver has posted gains of about +637% since early 2009 compared with +255% for gold in the same period.
|Range||1YR Gain||3YR Gain||10YR Gain||20YR Gain|
Remember, past performance is no guarantee of future results. But a look at just about any time frame over the last few decades shows that silver has outperformed gold. Another annual gain of nearly +80% may be a bit unrealistic, but if you think precious metals are on the rise, you should bank on silver instead of gold.
Silver Production Bottleneck
According to historic estimates, about a century ago there were about 12 billion ounces of unmined silver. In 1990, commodities research firm CPM Group pegged that figure at 2.2 billion ounces. But today, that figure has fallen to less than 1 billion ounces in above ground refined silver – a number that’s shrinking every day. Recycling is common for silver, but the dwindling supply of metal in the ground is creating a bottleneck
Silver Demand Increase
What’s more, a shift in who owns silver has contributed to a bottleneck. Stockpiles of silver were for decades largely part of Commodity Exchange warehouse inventories. COMEX inventories were mostly commercial holdings, with a small portion being held for investment purposes — peaking at around 280 million ounces in the early 1990s, according to a report by Ted Butler.
Then a funny thing happened — after the introduction of silver Exchange Traded Funds (ETFs), there was a profound shift in the location and structure of world visible silver inventories. Rather than being a commercial stockpile, investment holdings have overshadowed conventional-use silver by 4 to 1.
Given the long-term nature of ETF investment holdings and the current silver boom, it’s highly unlikely this new floor for silver prices will go anywhere. That skews the chart upward for silver.