Gold vs. Silver: Which Is the All-Time Champ?

by James Brumley | August 31, 2012 7:30 am

OK, this as admittedly a ridiculous scenario, but one worth contemplating — even if only to give a new perspective on an old debate.

Let’s say you’re going on a 30-year mission to the planet Neptune and will lose all contact with the world during that three-decade span. (See, I told you it was ridiculous.) The folks who are sending you into outer space are going to compensate you — before you leave — by writing you a check for $1 million. By the time you get back to the planet Earth you’ll be in your retirement years, so that $1 million will have to grow in value while you’re gone.

Clearly you can’t leave it in cash, since inflation will kill its value in the meantime. Let’s also take stocks off the table as potential 30-year holdings. Though it’s unlikely every company in the world is going to fold in the next three decades, let’s face it — you can’t have blind faith in any company given the global economy’s current status. In fact, we can pretty much narrow down your best investment options to a precious metal like gold or silver.

Obviously it’s a scenario that will never materialize, so it’s a question none of us will ever have to answer. But, it still seeds a question about the long-term metals market that does apply to all of us: Is gold or silver the better  metal to bury in our backyards, apocalypse bunkers and portfolios?

Upsides & Downsides

Got an answer yet? Before you jump to conclusions, there is a handful of things to think about. Some of them are apocalyptic in that they’ll only really matter if the entire financial system collapses and currencies become useless. At that point, rare and precious metals become the de facto currency. Other factors to consider aren’t quite as alarmist, in that they assume the financial system will outlast your return to the planet. In no particular order:

  1. Usability: Consumers love gold — especially in the form of jewelry. Banks and central governments love gold because … well … they just like to hoard it. And it’s seen as the all-weather currency in the event of a complete global financial implosion. Yet, gold doesn’t really do anything aside from offer the arbitrary value the world has assigned it. Silver, on the other hand, serves a real purpose in many industrial, medical and technological capacities. Though the estimates vary, about half of all the gold consumed in any given year is used to make jewelry and nearly half is used as an investment vehicle. About 80% of silver, on the other hand, is used for industrial purposes; only about 20% is used for jewelry and coins. Point being, we can function without gold, but it would be difficult to function without silver.
  2. Desirability: While industrial organizations may “need” silver, banks and consumers “want”’ gold. While it may not make sense, wants trump needs the vast majority of the time, even if the only thing driving the “want” is the hype of the desire.
  3. Portability: Depending on the prices at the time, gold can be up to 50 times more efficient as a wealth-storage vehicle in terms of weight. Said another way, if you wanted to bury a treasure chest with a precious metal in it, you could bury one chest of gold, or 50 chests of silver. There’s a flipside to that convenience, however.
  4. Flexibility: While gold may pack more value per ounce, as a universal currency, it would actually make a lousy currency when trying to buy ordinary items like a loaf of bread. Assuming prices for goods and services stay relatively the same (even after the Apocalypse), you’d have to pay for groceries with what it little more than a pinch of gold dust. Silver, via a $50 coin that weighed about an ounce, would be a far more feasible means of exchanging items of value.
  5. Availability: Ironically, though silver is about seven times as abundant as gold in terms of what’s left underground and yet-to-be mined, gold is about seven times more abundant than silver right now in terms of what’s been processed and is now being held in storage. On the surface, this appears to put gold in an enviable position; if the world falls apart, the most commonly held precious metal would become the common currency. On the off chance gold owners choose to keep gold out of circulation, however, silver could become more valuable simply because it’s “out there” in people’s hands. Barring a worldwide financial meltdown, however, silver is still the (relatively) more scarce resource, and therefore offers more value.

And the Winner Is …

You may have noticed one missing factor in the list of things that influence the price of precious metals: profitability. It’s not an omission. It’s a recognition that gold and silver returns — profitability — are wholly dependent on the those other five factors. With the perceptions and opinions of those factors changing daily, so too is the profitability outlook. And no, the two don’t move in tandem all that often.

082912 silver gold 300x190 Gold vs. Silver: Which Is the All Time Champ?
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Just for the record though, silver has outperformed gold for the past 10 years, and weighing the five factors above, by a score of 3 to 2 we can probably bet silver will hold that lead for the next thirty years as well. The reason(s)? It’s the more functional of the two metals and the less-volatile. Given enough time, whether or not the world as we know it ends, that superior “real” value will be realized.

So out of the two, silver takes the gold medal.

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