The Silver Leverage

Author: , on January 22, 2010

Gold may be a means to store value and retain wealth, silver may be the vehicle to increase wealth and is affordable to the average person.

Gold has crossed the $1200 USD per ounce threshold, and although retreated slightly, it is still well above the psychological $1000 level. As I write this, gold stands about $1100 per ounce. While gold gets the glory, silver poses the most promise in the short term. Although debated, silver is about 16 times more abundant in Earth’s crust than gold, but the gold/silver price ratio is well off this 16:1 ratio. With silver being between $18 - $20 per ounce, and gold between $1050 - $1150 per ounce, this ratio stands at about 60:1. Gold may be a means to store value and retain wealth, silver may be the vehicle to increase wealth and is affordable to the average person.

Gold has only two main applications - monetary and jewelry - and is almost never consumed. Almost all of the gold ever mined for the past 5,000 years is still in existence, while some silver has actually been consumed. Similar to gold, silver for public purchase, is mined and the product of government sales. However, silver is also recycled from its other uses. Silver is a natural biocide, used for medical instruments. It is also used in electronics, and due to advancements in technology a lesser extent in dentistry and photography. As a caveat to mining, there are few pure silver mining companies, and even fewer profitable ones. Unlike gold, silver is often a byproduct, usually of lead or gold mines.

With the background on silver, one may still ask why silver is poised to move higher. Simply, silver is demanded, supply is constrained more so than gold. ETFs are purchasing silver, it has received – and continues to receive - much less news then other precious metals, and silver has traditionally followed gold.

This chart breaks down the ratio from 1971 – 2009. While this shows the discrepancy, the greatest reason is history. In the 1960 - 1980 precious metals bull market, gold rose from $35 to $850, silver from $0.90 to $50. This is a 2,429%:5,556% increase.   We have not seen anything like this with this current commodity super-cycle. Gold has broken psychological thresholds, but silver has not. 

It is also interesting to conceptualize, that the average person cannot afford to hoard gold – this is like stuffing $1000 bills under your mattress. We can, however, afford to start gathering silver. We can all afford to stockpile $20s.


  • Jb

    April 12, 2010

    Which etf is best for silver?

  • Jim Brandon

    January 26, 2010

    Your analysis overlooks the key fact that there is an allure to gold that silver cannot match.

  • shuka

    January 26, 2010

    I like the math unfortunately the only thing I'm hording these days are dirty socks

  • Panama One

    January 25, 2010

    It may be easier in theory to hoard gold but you have to get it first and when you buy gold they ask for your social security number. If you were to buy gold and have such a large denomination, how would you spend it? Silver offers much more flexibility as a monetary unit with more upside than gold for wealth preservation. I agree with the silver leverage over other precious metals.

  • Sol Nasisi

    January 22, 2010

    But isn't it easier to horde gold? I just put one bar under my bed versus the 60 equivalent bars of silver I would need.

  • Andy

    January 22, 2010

    Nice short concise article. Would like to buy some silver, but where do I do so?

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