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Buying Gold to Fight Inflation? Don’t Do It – Buy Silver Instead

Especially in the near term, silver has several advantages


There’s a lot of talk about how to protect yourself about commodity inflation these days, what with crude oil prices recently flirting with $100 and the prospect of QE3 driving up inflation and affecting prices for food and other goods.

That has led many investors back into gold. In roughly three months, the precious metal has jumped about 15%, from a low of $1,557 in late June to almost $1,800 an ounce currently.

The logic makes sense. But if you’re investing in hard assets, you may want to consider abandoning gold for an even shinier alternative: Silver.

Silver is up over 20% in the last 30 days alone, thanks to anticipation and then confirmation of QE3. This has lifted the iShares Silver Trust ETF (NYSE:SLV) in kind, but has also boosted miners. Silver “streaming” stock Silver Wheaton (NYSE:SLW) is up 25% in the last month and almost 40% year-to-date. Pan American Silver (NYSE:PAAS) is up almost 35% in the last 30 days.

That trounces not just gold on a per-ounce basis but related investments you may trade in your IRA or brokerage account. Here are the 30-day returns for some top gold investments by way of comparison:

  • SPDR Gold Trust ETF (NYSE:GLD) up 10% in the last 30 days, up 13% YTD
  • Barrick Gold (NYSE:ABX) up 19% in the last 30 days, down 5% YTD
  • GoldCorp (NYSE:GG) up 22% in the last 30 days, up 6% YTD

Silver’s outperformance is compelling. But you must be asking yourself by now, “Who cares about the past — how do I know this will keep up in the future?”

Well, consider these key points:

1) Silver has real-world potential, including antibacterial qualities. That means there’s industrial demand for this metal supporting pricing. Gold is merely a speculative investment with no real “use.”

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2) Silver is trading at a relatively low ratio to gold right now, historically speaking. Evaldo Albuquerque has a good post  on The Sovereign Investor if you want more detail. Here’s the chart from his article.

3) Yes, silver crashed from its peak of almost $50 in mid-2011 down to under $30 early this year. But consider that silver is still off its 2012 highs set back this spring. The inciting incident for that rally? Concerns about a macro slowdown and fights in Congress over how to pay for America’s runaway spending … sound familiar? Here’s this year’s chart showing how we’ve only recently reclaimed the highs. And consider that even around $35, silver is roughly 50% away from its highs set last year.

4) Here’s a bonus for you doomers out there: Silver has more “currency potential” for the apocalypse crowd. After all, it’s easier to trade small amounts of this cheaper metal than gold coins that could be worth hundreds.

If you’re looking for a hard asset to hide out in, either to fight inflation or just to make some short-term money on the QE3 news, then consider silver first. It may shine brighter than gold over the next several weeks.

Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via@JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

Article printed from InvestorPlace Media,

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