Riding The Silver Bullet

Precious metals have proven themselves as a phenomenal investment when stocks are getting hit the hardest.

A Bullet Proof Vest Against Recession

A Bullet Proof Vest Against Recession

Precious metals have proven themselves as a phenomenal investment when stocks are getting hit the hardest. As a result, investors have been grabbing up shares of gold stocks and the metal itself at an amazing rate. But despite the success of the goldbugs, 99% of investors are overlooking the most lucrative precious metal.

Better than gold and platinum and even exotics like palladium the main precious metal that you need to own right now is silver. That may come as some surprise given the rally that gold has had this year, and given the analyst sentiment that has pushed the SPDR Gold Trust ETF (NYSE: GLD) to the world’s sixth-largest holder of gold bullion, ahead of Switzerland and China.

But from a valuation standpoint, there is no question that silver is the best metal to buy right now. The Silver Bullet.

Making a value case for a commodity like gold, silver, or oil, isn’t quite as simple as it is with a stock. That’s because while stocks have easily defined assets, the value of a commodity is simply whatever people are willing to pay for it. It all comes down to scarcity, or how much of a given commodity is available.

In the case of precious metals like gold or silver, the metal is worth something because there isn’t a lot out there. Likewise, nonrenewable energy sources like oil are valuable because it’s in limited supply.

Traditionally, investors have looked at the relationship between gold and silver’s prices to determine whether one of the metals presented a good value play. At present, the gold-to-silver price ratio sits at approximately 59:1, which while high is nothing compared to its peak of 98:1 back in 1991.

But the fact of the matter is that the gold-to-silver price ratio is a worthless measure of the two metals’ value. To get a more meaningful indicator, let’s take a look at each metal’s market capitalization‚ the value of all of above ground‚ gold or silver multiplied by its price.

The results are startling

Unlike gold, which has limited industrial uses, silver is used in a number of manufacturing processes. Some of these processes, known as non-recoverable industrial consumption (NRIC), result in the destruction of the metal and lower the amount of above ground silver. According to silver analyst Theodore Butler, in the last six decades NRIC has resulted in more silver being consumed than mined ‘from 10 billion ounces above ground in 1950 to just 1 billion today’.

Compare that to gold, which has seen its above ground supply increase 150% to 5 billion ounces during that period.

As recently as 1975, the value of the world’s gold was 23 times higher than silver’s. Today, with depletion taken into account, gold is currently priced 250 times higher than silver. That is a shocking difference.

And it is one that suggests silver is grossly undervalued as an investment right now. It looks like it’s time to ride the Silver Bullet.

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4 Comments

  1. Pingback: » Riding The ‚ÄúSilver Bullet‚Äù » Gold Stock Investment

  2. Hal_Burns

    Market Man, are you sure you are not Clayton Moore? Remember the guy who played the Lone Ranger in the 50's? Once again you are right on the mark. Of course so was the Lone Ranger, that is why he always comanded respect, people knew he was right. Silver will become more valuable and it won't be long before we began to see it on the rise. I just want to say thanks for your advice and I look forward to your next article.

  3. Hal_Burns

    Market Man, are you sure you are not Clayton Moore? Remember the guy who played the Lone Ranger in the 50's? Once again you are right on the mark. Of course so was the Lone Ranger, that is why he always comanded respect, people knew he was right. Silver will become more valuable and it won't be long before we began to see it on the rise. I just want to say thanks for your advice and I look forward to your next article.

  4. Pingback: With the value of a US dollar plummeting, price of gold is at an all time high. Is the price of silver undervalued?

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