Why Invest in Silver Rather Than Gold?

 

The main difference between gold and silver is that gold is held by almost any country as a stabilization device for their currency. Therefore, gold has a special status; governments tend to keep the gold price stable or influence it by holding or selling deposits. Furthermore, gold is treated differently for taxation, being tax free in many countries. In the case of silver in some places the buyer has to pay taxes when purchasing silver - an amount that will be lost when selling. This has to be considered in profit calculations.

As gold is a good and reliable form of investment, and there is still a huge price difference between gold and silver, it could be questionable if silver really could become an efficient investment to return profit. Only one kilo of gold today is worth as much as about 50 kilos of silver.

The key is in how much silver and gold will be available in the future, and therefore if increasing silver and gold prices could retain the same relationship as today - silver stack up.

The main difference compared to gold is that silver is used every day in many areas, from batteries to space shuttles, from pharmaceutics and medicine to solar panels and simple electrical switches, a huge number of products in our every day's life need and use silver. Also, there is a very little silver left in deposits and natural sources.

In contrast, gold is hardly used for industrial purposes. National banks still hold large amounts of gold in order to control worldwide gold trade and gold pricing. In the case of silver, western governments have reduced their deposits so far, they won't be able to have a major influence on price stability or development. During coming years, silver prices will mainly depend on the market laws of supply and demand. As we have seen, demand is increasing with the growing need of high-end electronics and industrial products which contain silver and supply is reducing.

Since the year 2004, worldwide silver demand is increasing, re-flected in increasing silver prices. Silver charts of the last 10 years are showing a price progression from less than $6 to about $17, with peaks at about $21 in February 2008.

What factors determine the value of any good? Mainly, value is given by supply - the availability of a good - and demand. The more industrial branches need a raw material, the more precious it becomes as the amount of the available commodity gets smaller.

Gold is used in very few industrial products. The largest amount of gold is deposited in banks or bought as luxury items. Silver, on the other hand, is needed to guarantee our life standard and will become even more important in the near future. Silver mines will probably be exhausted within the next 15 to 20 years, so no new silver will be brought into circulation. For the first time in history, silver production in mines is decreasing - in a time of highest economic demand.

So why is gold still 50 times more expensive than silver? The real ratio of available gold to silver is about 1:3 or even 1:5 - so actually, silver price should be 3 to 5 times higher than gold prices.
It isn't... right now.

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