Is Buying Silver As Good As Gold?
Gold gets all of the attention when it comes to investing in precious metals, but what about silver? There are a lot of similarities between silver and gold in terms of investing, but putting your money in silver is slightly more risky. Like any other investment you make, educating yourself on the benefits and risks of silver investing is the best way to decide if it is the right move for you.
Precious metals such as silver and gold are appealing investments because they hold their value better than paper money. Although the price of precious metals is influenced by international trends, there is no way for central banks to influence the price of metals by printing more money or buying or selling government bonds to expand or constrict money supply. Precious metal supply is determined by the success of mining operations alone, so the price is more stable. In this sense, silver and gold are very similar investments.
Supply and demand pressures make silver a potentially more lucrative investment than gold. Gold supplies continue to increase globally while its use in manufacturing is limited. Silver supplies are decreasing, and it is used in several industrial capacities. With decreasing supply and steady to increasing demand, the value of silver should outpace the value of gold.
Supply and demand factors may suggest that silver should be a better long-term investment than gold, but these market indicators alone do not determine the value of the metals. The risk of investing in silver is the historical relationship between gold and currency. The gold standard, which was formalized under the Bretton Woods international agreement of 1944 system but had essentially been in place in different forms long before, tied currency values to a specific amount of gold. This way of valuing money lasted until the early 1970s, when the United States backed away from the gold standard to gain more control over the value of the dollar to cope with a balance of payments deficit.
Before the gold standard became the norm, some countries did have a silver-based currency valuation system or a bimetallic system. But silver never became as internationally accepted as a valuation standard as gold. Given the historical tie between gold and currency values, gold tends to weather economic declines better than silver, if for no other reason than investor preference. In addition, most people believe gold to be more valuable than silver for noneconomic reasons, which influences the price.
The Hunt Brothers
In 1973, the brothers Nelson Bunker Hunt and William Bunker Hunt of Texas began investing in silver, at a time when it was illegal for citizens to purchase gold. By 1979, the Hunt brothers had formed an investment group with friends and associates and had purchased more than half of the world's silver supply. Their demand drove the price of silver up, creating a price bubble that increased the value of their silver stocks tremendously. They made billions manipulating the market this way. A series of changes in investment laws and political changes caused the price of silver to collapse. Some investors went bankrupt and the Hunt brothers were charged and convicted of global market manipulation.
Although different rules are in place now in an attempt to prevent this from happening again, this incident and the ability of investors to manipulate the market continues to taint silver for some investors.
Based on economic principles, silver should be as good an investment, if not better than gold. Indeed, sometimes the price of silver does outpace gold. However, silver suffers from an image problem that adds risk to a silver investment.