Millions of people understand and appreciate gold as a form of disaster insurance. Because of its high unit value, a small amount can represent a form of insurance for an investment portfolio filled with paper assets. Silver can do that as well, and also provide options for every day financial activities. That can make silver the ultimate disaster insurance.
WHY SILVER COULD BE THE ULTIMATE DISASTER INSURANCE
Since gold and silver were confiscated in 1933, the price spread between the two metals has grown. This is known as the gold-to-silver ratio. Up until 1933, the gold silver/ratio was 20:1, with gold at $20 per ounce, and silver at $1. At times it was higher, and at others lower. But in recent decades the ratio has risen dramatically.
With the current price of gold hovering near $1,300 per ounce, and silver at just under $18, the gold/silver ratio is roughly 73:1.
A financial earthquake could cause the current ratio to revert to the historic norm. This will be caused by gold and silver rising in tandem, but silver rising more quickly. Should that be the case, silver will provide a better return on investment than even gold.
Here are some of the reasons why that could happen…
SILVER ISN’T AS POLITICALLY CONTENTIOUS AS GOLD OR CRYPTO CURRENCIES
Whenever the price of gold rises substantially, investors are reminded that since the government called in the metal in 1933, it could very well do so again. Given the amount of financial difficulties faced by the US government, that’s certainly a possibility. The government could confiscate gold as a way of getting more of it into their own vaults, or to restrict its use as an alternative currency at a time of extreme dollar weakness.
Crypto currencies, like Bitcoin, could be subject to a similar restriction. Since crypto currencies are alternative currencies, it’s possible the government will declare them to be illegal in order to uphold the integrity of the dollar. Declaring alternatives to be illegal could be one of the most effective ways to make this happen.
Almost no one ever talks about the possibility of a government ban on silver. That’s because silver is a relatively low value precious metal (compared to gold and platinum), and is also a much more thinly traded market. Silver simply does not represent the threat to paper currencies that other precious metals and crypto currencies might.
That means that it’s entirely possible that silver will be untouched in the event of a government ban on gold and crypto currencies. It simply doesn’t draw the political interest that the other alternatives do.
CENTRAL BANKS AREN’T SITTING ON TREASURE TROVES OF SILVER
There are frequent accusations of manipulation of the price of gold by central banks. This is entirely possible given that central banks have enormous stores of the metal. Since gold is the most historic form of money, it continues to be used as a reserve to back paper currency issued by most countries.
Central banks hold gold in much the same fashion that they hold the currencies of other nations. Some countries even hold more in gold bullion than they do in foreign currencies. This includes the United States, with gold at 75.3% of its reserves.
While this might act as additional support for national currencies, it also holds the possibility of central banks selling some of their reserves at opportune times to suppress the price of gold.
To put this in perspective, worldwide demand for gold in 2016 reached about 4,300 tons. Meanwhile, the world’s central banks have approximately 30,000 tons of gold reserves. This includes more than 8,000 tons held by the United States. This means that the US government alone could supply nearly two years of global gold demand, all by itself.
None of this means that the US or any other central bank in the world has any intention or desire to sell off all of their gold. But the size of government reserves – compared to annual demand for gold – highlights the enormous potential for price manipulation by official sources.
The possibility of manipulation of the price of silver by central banks is entirely remote. That’s because unlike gold, central banks don’t maintain large silver reserves. If they wanted to flood world markets with silver, they would first have to purchase it on the open market. That would defeat the purpose, since they can only sell as much silver into the market as they can buy from it.
SILVER IS VERY AFFORDABLE FOR THE AVERAGE PERSON
With Bitcoin fetching over $7,000, many middle-class investors are shut out of that market. And gold trading near $1,300 limits the amount of the metal that small and medium investors can afford a hold in their portfolios. This effectively limits the size of the potential market for either investment.
But at well below $20 per ounce, even small investors can afford to purchase silver for investment. This is why silver has sometimes been referred to as the poor man’s gold. Historically, though the poor couldn’t afford gold, they often could afford at least a limited amount of silver.
This could be especially important in the event of a disaster. While people of all wealth levels will be seeking alternative currencies, silver will be affordable to by far the largest number of people. While a few million people may be purchasing gold, tens of millions may be purchasing silver.
This gets back to the gold/silver ratio. As many millions of people scramble to find a suitable and affordable alternative currency in a financial or economic crisis, the price of that currency will rise. Silver will almost certainly draw in the most traffic, just based on the fact that it’s more affordable.
This is how the gold/silver ratio can go from 70+ down to 20 in a matter of months. While the price of gold might rise from $1,300 to $10,000, the price of silver could go from less than $20 an ounce, all the way to $500.
The percentage return on silver in that situation would be several times higher than gold. This would even represent a form of increased purchasing power by small and medium investors in the face of a major crisis.
And that has an even more practical benefit…
SILVER CAN BE THE PERFECT BARTER METAL
Given the price of gold and Bitcoin, you can’t walk into grocery stores and gas stations and make purchases with those currencies. For example, if gold is at $10,000 per ounce, you won’t be able to use 1/100th of an ounce to buy $100 worth of groceries. You can rest assured that no merchant is going to make change for that coin.
Silver, being far lower in price, is a readily tradable commodity. You may not be able to walk into a grocery store or the local Walmart and make a purchase with silver coins right now. But should much of the economic, financial and political climate change in a major negative way, retailers and other merchants will be only too anxious to accept whatever alternative currency has any value.
Silver is perfect because of its price, but also because of its portability. And when a disaster causes millions of people to acquire the metal, its use as a currency, or even as Barter in private transactions, is likely to explode.
After all, silver was used for exactly this purpose for thousands of years. Most people inherently know that silver has value. For that reason, they’ll be highly likely to accept it in trade in an environment where either the value of paper currencies has collapsed (inflation), or where the currency has largely disappeared (deflation).
Historically, gold was used for larger purchases, while silver was used for everyday transactions. This makes owning at least a small amount of silver an absolute necessity for the prudent investor. While gold represents investment portfolio insurance, silver can literally represent money in your pocket.
It’s well worth owning, in addition to a gold allocation, along with other investments that you have.
THE BEST WAYS TO INVEST IN AND OWN SILVER
Since silver is not as popular an investment as gold, the number of potential investment options is not as great. For example, there aren’t as many silver exchange traded funds (ETFs) as there are gold ETF’s. And the ones that do exist are much smaller and more thinly traded.
Even more difficult is investing in silver stocks. While there are some mining companies that specifically concentrate on silver production, most mine other metals as well, and do not represent a pure play on silver. As well, silver mining companies represent silver production, and not the metal itself.
Physical silver is the preferred way to hold the metal. Perhaps the most common way to own it is through “junk silver”. This is pre-1965 US silver coins (the US largely halted minting silver coins from 1965 forward). This can require purchasing a very large physical quantity of the metal. Much of the coin stock has already been melted down, so the coins are becoming increasingly hard to come by.
Because of their rarity, numismatic and semi-numismatic silver coins could be the single biggest hedge against economic, financial or political disaster. While they are made of silver, they also have value beyond their metal content. Their rarity makes them worth several times more than the value of the silver content that they contain.
Silver fractionals, rounds and bars, which are pure silver, are another popular way to hold the metal. Rounds and bars can enable you to own a larger quantity of the metal, which will be valuable for major purchases in the event of a financial breakdown.
Perhaps the best way to hold silver overall is by using two or more of these methods. However numismatic and semi-numismatic silver coins stand out as perhaps the single best option.