Is Silver a better investment than Gold?

“Silver, on the other hand, has a reduced price and hence, will be more attractive to the general public.”

By Abinash Narayanan, Staff Writer

For many decades, gold has been considered the best investment.  But during the last few months, the price of silver has shot up drastically, making investors contemplate whether silver has overtaken gold as the best precious metal investment.

To put this into perspective, gold is the only precious metal investment that increased in price every year for the last 10 years.  Then again, silver prices have more than tripled since June 2009 to post an all-time high of US $49.82/ounce in April 2011.

In addition to being used along with gold as a store of wealth, silver has other industrial uses – the main among which is in the emerging solar power sector.  Silver is used exclusively as a reflector in solar power cells.

One of the most common and basic theories used to analyse silver prices is the silver/gold ratio.  This ratio calculates how many ounces of silver it would take to buy an ounce of gold.  This relation is based on the assumption that the quantity of silver found in the Earth’s crust is 17 times the quantity of gold.  This essentially means that the silver/gold ratio will theoretically not fall below 17:1.

The silver to gold ratio has fallen from 70:1 to around 35:1 in just a year.  And this ratio is expected to lower in the long run due to huge industrial demand for silver.

After hitting its all-time high of just below $50 (U.S.), the price of silver has snapped back to around $35 (U.S.).  This trend is noticeable with any investment that rises exponentially over a short period of time.  However, it is widely accepted that the prices of silver will continue to rise faster than gold in the near future prompting analysts to label silver as the investment of this decade.

Even though gold continues to rise steadily and reach the US $1500 per ounce level, gold is a safer investment and may even be beyond the reach of most people.  Silver, on the other hand, has a reduced price and hence, will be more attractive to the general public.  The only problem being that the prices of silver will be more volatile than the stable haven provided by gold.

The increasing demand for silver combined with the expectation for the silver/gold ratio to decrease further, and almost a constant increase in the price of gold means that it is reasonable to lay your bets on silver price to increase considerably in the near future.

But it is rather foolish to think silver will switch places with the gold medal in the Olympics anytime soon…

By Abinash Narayanan, Staff Writer

ARB Team
Arbitrage Magazine
Business News with BITE.

Liked this post? Why not buy the ARB team a beer? Just click an ad or donate below (thank you!)

Liked this article? Hated it? Comment below and share your opinions with other ARB readers!