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The Case For Why Silver Is Better Than Gold

August 30th, 2013

gold silver metalsSteve Mauzy: Whenever an asset endures a hard sell-off, my interest is piqued. Exceptional values are frequently found after most investors head for the hills. 

Today, I see an exceptional opportunity in silver. For the past two years, selling has been relentless. Today, silver sells at a 50% discount to its multi-decade high of $49.80 an ounce set in April 2011.

But price doesn’t automatically translate into a good value. I find silver attractive because of its low price relative to my bullish long-term outlook.

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Why am I bullish on silver?  Several reasons…

A key reason is that demand for silver’s “moneyness” will remain elevated. I say that because silver is a store of value. That’s an invaluable characteristic in this inflationary environment.

The Federal Reserve continues to pump new money into the economy. Each new dollar diminishes the value of each outstanding dollar. Once the Fed starts tapering, these dollars aren’t going away.

Perhaps more importantly, banks have $1.8 trillion in excess reserves (banks usually carry no excess reserves) on deposit with the Fed. These reserves are a source of loanable funds, which can lead to new money production many times beyond the actual reserve account.

Silver, therefore, will continue to hold demand as store of value.

If you agree with my outlook, you’re probably wondering why I recommend silver instead of gold? After all, gold also has “moneyness” and is used as a store of value. And it too has experienced a hard sell-off.

I prefer silver for two key reasons.

First, the sell-off in gold has been less small. Sure, gold is down around 27% from its all-time high of $1,921 an ounce. Yet silver has plunged 50%.

In addition, the gold-to-silver ratio remains elevated at 58. That means it takes 58 ounces of silver to buy one ounce of gold. The average long-term range is between 65 and 45, making silver is the better value today.

And second, silver offers an option on economic growth. Unlike gold, silver is an important commercial metal.

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