Will Gold Suffer the Same Fate as Silver?


If you’re reading this newsletter, you’re probably at least partially convinced of the value of investing in hard assets like gold.

But your broker and the guy down the street tell you investing in gold isn’t safe.

You’ll lose money. It isn’t liquid. The price will stagnate. Look what happened to silver, they say.

With all due respect, neither your broker nor the guy down the street know enough about investing in precious metals to give you advice.

Let alone enough to compare fluctuations in the gold and silver markets.

Never mind predicting the future, which we all know is a notoriously risky business.

So here are some facts about gold and silver so you can draw your own conclusions.

The Scoop on Silver

Silver is a lovely metal. It is used in jewelry, art and collectibles. It has superior thermal and electrical conduction characteristics. It also has many industrial uses including electrical and electronic components, photography and coins and medals. It is anti-microbial, so it is sometimes used in medicines. It resists corrosion and has high ductility.

There is more silver on Earth than there is gold. As a result, silver will always be less expensive than gold. Silver’s many applications means that there will always be demand for silver.

Yet despite its favorable supply and demand profile, the price of silver has suffered many highs and lows.

On Thursday March 27,1980, the price of silver fell more than 50 percent from a then high of $49.45. The catalyst for the event was a margin call on the highly leveraged silver stores owned by the Hunt brothers of Texas.

The Hunts had hoped to corner the silver market. At the time, they owned about one third of the entire world supply of available silver. COMEX adopted “Silver Rule 7” which placed limits on buying silver on margin.

When the Hunts couldn’t meet their margin calls, the silver market went into turmoil.

Silver Thursday was just one of the many times the price of silver has fallen far and fast. Silver prices tend to be very volatile. They often change based on news about gold or other precious metals. Silver market prices change often despite the stability of both supply and demand.

At the end of 2014, silver traded at about $16 per ounce. This is much lower than its historical price. World demand for silver continues to increase. Many investors are perplexed about silver’s continued low price.

Gold is not Silver


Gold prices have historically trended upward. Despite fluctuations, the price always rose eventually.

Gold hit an all time high of $1,924 per ounce in 2013. Since then the price of gold has moved up and down, but has never passed that level. Near the end of 2013, gold sold at just under $1,200 per ounce.

Gold continues to be a rare and precious metal. There are many uses for gold. In addition to jewelry, gold is used in electronics and industrial equipment. Demand is strong. Supply is stable.

Given all that, it would seem that the price of gold should continue rising. Why is the price stagnant?

Most of the gold in use in the world is stored in central banks. For the past few years, investors have been concerned that governments would release this gold to the market to provide a boost to their flagging economies.

While the economies might have needed that boost, the huge increase in available gold would have forced the price of gold to very low levels.

Investors responded to this fear by selling gold. This had the very same effect that they feared from a government sell off. The price of gold went down even as demand and supply stayed stable.

Now that most global economies are in recovery, the fear of inflation has come back.

Gold has always been seen as a hedge against inflation. Many investors will begin turning to gold to protect their capital.

As a result, the price of gold will resume its traditional rising trend. Now is a great time to buy both silver and gold while prices are low.

Will gold suffer the same fate as silver? Yes. In fact, it already has. Both metals fell from all time highs to near record lows despite stable supply and demand. Both are currently on the rise.

The change was based on fear in both cases. The fear had little or no basis in reality. As the economy continues to improve, both metals will rise. This is an excellent time to buy gold, silver or any other precious metal.

Let’s Recap

Let’s review the positive aspects of investing in gold.

  • Gold has been a source of wealth for centuries.
  • People – except your broker, it seems -- love gold.
  • It has many consumer and industrial uses that stabilize demand across multiple market segments.
  • It has a steady yet robust supply chain that will ensure a continuous supply.
  • Gold prices have almost always outpaced inflation.
  • Gold is an extremely liquid investment.
  • Gold is a safe place to store your money in a downturn.

Now let’s compare the negatives.

  • It makes your broker nervous.

Well, who cares? It’s not your broker’s money.

Don’t worry about the value of your gold investment suddenly taking a dive. It just isn’t going to happen.

Every portfolio should include some gold for safety and security.

What are you waiting for?

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