I thought it might be interesting and educational, for myself and also I hope for others, to solicit some discussion on this topic, since many people are very passionate about silver, and if they have compelling and indisputable reasons then I am always open to changing my mind (again :-) ).
So, at the risk of possibly inciting a riot now, here is a quick and very short starting list of "some reasons for believing gold is the ultimate wealth preserver, while silver is not"...
- Silver demand today comes predominantly from manufacturers. It is positively correlated to economic demand; it does well when there is strong consumer demand for the products it is used in. This is one of the reasons cited by silverbugs to justify future massive price rises they anticipate - its scarcity value. However, if (when?) the economic demand for those products dries up, perhaps brought on by the very same high inflation that the silverbugs foresee coming down the pike, industrial demand for silver will dwindle along with that. Silver is used in desirable consumer products, but I don't think it's in anything quite as necessary as, say, food or energy? That is the largest part of the current buyers -- who steps into their shoes to buoy demand for silver, when the manufacturers leave the market as a result of sluggish global demand? There is no significant industrial demand for gold; it is uncorrelated to global economic performance. If/when the global consumer economy contracts significantly, there will be no disappearance of industrial demand for gold -- there is only really investment demand, even in the form of jewelry the purchase is fundamentally an investment by the buyer. If (when) the global economy takes a bath, the desire for gold is likely to only increase, in my opinion.
- Silver is the poor man's gold. The massive investors of this world, the Central Banks (CBs) and Sovereign Wealth Funds (SWFs) of current account surplus countries, do not add silver to their reserves in any meaningful degree. They keep gold in their reserves, but not much, if any, silver. If industrial demand for silver should fall, these giant potential buyers are not going to suddenly step into the shoes left empty by the manufacturers of this world, I strongly suspect. There are reasons that they do not keep silver...
- Silver is a "necessary" commodity. Many products that people need and/or desire contain silver, and in many of those applications there is no substitute for using silver. This means that it would be deemed totally unacceptable to hoard silver, because it treads on the toes of consumers the world over. Imagine CBs or SWFs decided to hoard, say, wheat or corn? These are similarly necessary commodities, and hoarding of them would distort the supply/demand balance, speculatively increasing the price and impinging on consumers. There would be uproar. These foodstuff examples are intentionally selected to emphasise the principle -- clearly I am not attempting to say that silver is as necessary to human existance as wheat or corn! But the principle I am illustrating is the same, albeit to a significantly lesser degree. The reason gold has been selected over the millenia as "money", is specifically that it impinges on nobody if you choose to hoard it. The price can rise as high as is necessary to clear the supply/demand balance, and nobody would be hurt. In fact, unlike any other "commodity", the higher the price of gold goes the better people like it! This is simply not the case for silver.
- Silver is actually not that rare to find, relative to gold. There are very few silver mines in operation today, with most silver mined as a by-product of mining other industrial metals. This is not due to there being little silver to mine in the world, but because the economics of mining silver mean that it is in most instances not economically viable to dig it up. Getting it as a by-product of some other activity is a bonus to the miners pulling out copper etc, it is an afterthought as far as they are concerned and they are not especially bothered how much they get for it. If the price were to significantly rise, it would mean that many more silver mines become economically viable, and the supply will ramp up to meet demand (bringing the price back into balance). There is plenty of silver to mine, just not at today's prices. This is quite unlike the case for gold, there are plenty of mines digging up only gold in the world today. When the price rises, I daresay more gold mines might become viable and there could be an increase in supply as a result, but I think you will find that the ability to respond in this way to higher prices is much less than is the case for silver.
- Similarly, because silver is a part of many consumer products, as the prices rises it becomes increasingly viable to recover the silver from products at the end of their life, increasing the scrap supply. Since gold is not used to any significant degree in consumer products, that avenue for increased scrap recovery will not be available. Gold is held pretty much only for monetary purposes, and it will only be returned to the market at a price that people believe it is fully, or more likely over, valued. Given the on-going, by-design debasement of paper currencies, any thinking person should understand that there is no time that paper is better than gold, unless you want to spend your wealth immediately. So, if gold should some day become significantly overvalued then perhaps yes, it might be dishoarded until the price comes back to whatever is deemed to be fair value. But I don't think this significant perception of overvaluation is very likely to happen to be honest.
Do you have counter-comments to any of the above? Or perhaps further reasons that you would like to add to the list? This is just a short and hastily-compiled list that I have knocked up really for the sake of stimulating the debate! :->
