People say that silver is the poor man’s gold. The first time I heard this, I thought it was… silly.
Sure, silver is more abundant and cheaper per ounce than gold, but it’s a very useful and valuable metal.
It has different properties from gold and can’t be substituted for many uses. Nobody ever had a silver tooth.
More important is that gold is so malleable, it was always possible to exchange smaller grains, coins or other bits of gold for larger amounts of silver. People didn’t pay with silver dollars because they couldn’t afford $20 gold coins; they did it because a silver dollar was enough for most day-to-day expenses back then.
In today’s world of paper and digital ownership of precious metals, the expression makes even less sense. If I want to buy $20 worth of gold, it’s no problem that the smallest common coins weight 1/10 of an ounce and are worth over $130. I don’t have to resort to buying silver. I can buy almost any fraction of an ounce of either metal I want.
Silver isn’t the poor man’s anything—it’s a valuable commodity, an essential industrial mineral, and a recognized monetary metal.
Why does this matter?
Because this unjustified perception of silver may cause people who should know better to miss out on the extra leverage silver often gives us over gold. Note that I didn’t just say, “can give us,” I said, “often gives us.”
Last month, gold rose 3.46%. Silver rose 3.94%. That’s only about 14% better, but the point is that this pattern is the norm, not the exception, when precious metals are rising.
The last time precious metals prices were really on a tear, silver outperformed gold even more:
- From the bottom of the crash of 2008, London PM gold rose from $713.50 to $1895 in September of 2011. Gold was up 165.6%.
- From the same starting point, London PM silver rose from $8.88 to $48.70 in April of 2011. Silver was up 448.4%—and in less time.
And remember that most silver is produced as a byproduct. There are times when precious metals are rising and silver supply is threatened by slumping industrial metals demand. That matters because it trends to send silver prices soaring ahead of gold prices, as seen in scatterplot charts of the gold-silver ratio. The last time this happened in 2010-2011, the returns for many silver speculators were spectacular.
This is why I’ve said that if you’re a gold bull—which I am this year—you should be a raging silver bull. Make sure you have plenty of exposure to great silver plays in your portfolio.
That’s what I’m doing with my own money.
