As silver shows its temper tantrum in the kind of price tag volatility, the media's pundits are coming out in mass to declare that gold is now the far better investment. Their claim is quite easy: if silver will be so volatile, why really should investors very own it?
Our solution is even easier; growth is what can make silver shine.
In contrast to silver, gold does seem to get a happier purveyor of anti-inflationary dollars. However, through the top-view, the truth is that gold hasn't however offered traders a climb equal to that of silver. Rather, it can be a slow mover, a relative non-starter, and typically really conservative when in comparison to other commodities.
To evaluate gold, the new anti-inflationary investment, versus silver is always to compare the S&P500 to a single micro-cap equity. While the S&P500 average has offered for sluggish, but tangible long-term performance, a single micro-cap stock may provide twice the returns with ten times the volatility.
It tends to make perfect sense why financial traditionalists would prefer to very own a low-beta security or commodity; low beta investments can be levered to a much greater extent than a high-beta investment.
Investors really should realize that the change in investment recommendations have come with an obvious change in investment philosophy. Active traders and media pundits have a larger interest in realizing paper profits than does the individual investor who chooses to create small, unleveraged purchases of real, physical bullion.
On Wall Street, nothing short of exchange-traded funds, an effective derivative, or options on exchange-traded funds, a double dose of speculative derivative plays, will do.
Last year, we evaluated why we believe silver to get the preferred investment to gold, and the fundamentals surrounding such a call have not changed. Certainly, silver has offered better returns and continues to have better upside, despite all the market chatter.
The true advantage of silver isn't that it is more volatile, or that it can be a smaller market, or even that it's less expensive. No, the real advantage is in industry. Most silver traders, despite having a really bearish sentiment toward the US economy, know that the world can grow in light of the United States, and in places as far off as China and India, economic development is tallying up in the double digits, even as the US economy stagnates.
In looking at both metals for their industrial exposure, it becomes extremely clear which one shines brighter. Gold, which is consumed mostly in jewelry, provides quite little outlet for consumption, as Cash4Gold proved there are plenty of people willing to cash in their valuables. Gold which is not easily recycled-gold used in dentistry products, the manufacture of electronic products-represents roughly 10% of annual consumption.
Silver is used primarily in industry, particularly in the rising field of RFID technology, which will experience double digit growth rates in a log scale only the money supply chart could match. Jewelry consumes only really little of total silver consumption-less than 30% of silver is used in jewelry-and thus silver, holding all else constant, is likely to shrink in supply significantly faster than gold will.
While both are inflation hedges, there is only one monetary metal that provides opportunity to profit on inflation, a breakdown of the dollar, or even a complete revival of the American economy, and that metal is, more so than gold, silver.
To the individual investor who cares very little about the day to day movements of the market but as an alternative the long-term performance of a quality investment, silver can make a perfect investment vehicle on recovery and economic calamity.
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