Apr 3 2009 11:12AM
Why I Prefer the Silver Lining
In my recent interview on CNBC’s Squawk Box, I was asked why I preferred silver. Here’s why:
1. 1) I am bullish on gold. I can enthusiastically endorse all the bullish arguments. In fact, my investment in the Central Fund of Canada Ltd. (CEF) contains one ounce of gold for every 50 ounces of silver. I am not negative on gold; far from it. It’s a question of better or best.
2. 2) At these prices, gold is not a greatly in-demand industrial metal. It has industrial uses, but many of these uses are too expensive for gold. Gold is a monetary and jewelry metal. It also is enthroned in human consciousness as a store of value. I expect gold to continue to rise if Barack Obama continues to create so much currency.
3. 3) Silver is also a jewelry and monetary metal, but it is also a very important industrial metal. It has over 2,000 industrial uses. Back in the ‘70s when I liked silver over gold, there was ten times as much silver above ground as there was gold. Despite that, we made two to three times as much money on silver as we did on gold.
Now the ratio has changed. Industrial use has so depleted our silver inventory that government now owns none and there is six times more gold above ground than silver, which is by far the scarcer of the two metals.
So why is gold many times more expensive than silver? Because 99.9 percent of the people in the world think gold is much rarer than silver. But they are wrong – dead wrong – and sooner or later the supply/demand equation will favor silver and narrow the pricing gap between the two metals.
Most of silver is as a byproduct of mining base metals, like copper and zinc. In this economic collapse, we will mine a lot less copper and zinc, and produce a lot less silver. Silver supplies will become tighter and tighter, which means higher prices.
It is a very simple fundamental: if something is scarcer than something else, the way to place your bet is with the scarcer of the two commodities, as long as they are both in demand. They will both continue to be in demand.
But, Howard, I hear you say, if silver goes as high as you think it will and the gap is narrowed, won’t that hurt industrial usage of the metal when it becomes too expensive and people start using cheaper alternatives?
Yes! But do you hear what you’re saying? That can only happen when silver prices are a lot higher than they are now. The answer is self limiting.
Silver is by far the better bet of the two. Two or three years from now the price gap between gold and silver will be far narrower.
AI
