From Genesis 2:11, gold is the first symbol of material wealth mentioned in the Bible, and throughout the Bible gold is referred to 25% more often than silver. It was primarily used to add aesthetic value to items in connection with deity and royalty. And from the Pharaohs of Egypt, to the Aztecs of Mexico, to the California Gold Rush – throughout time and throughout the world – gold has endured as the historic “currency of choice”.
Silver was used in similar ways as gold, but most commonly as a trade currency with a value far less than that of gold. At the height of Ancient Israel’s glory (about 640 BC), it is recorded, “All King Solomon’s goblets were gold, and all the household articles in the Palace of the Forest of Lebanon were pure gold. Nothing was made of silver, because silver was considered of little value in Solomon’s days.” (First Kings 10:21)
Silver is the most plentiful and least expensive of precious metals. In spite of this, from Ancient Turkey, to the Roman Empire, to the Incas of Peru, silver has been esteemed for its gleaming beauty, malleability and resistance to corrosion. Today, demand for silver comes primarily from three sources: industrial & decorative uses, photography, and jewelry & silverware.
Unfortunately, as you probably know, silver gets somewhat of a bad rap on the Street. Back in 2005, when silver was trading at around $7.50 per ounce, I heard an investment manager say, “You can buy an ounce of silver for the price of a tuna sandwich.” And more recently, someone commented, “Silver is gold’s crazy little brother” due to its notoriously volatile price. In silver-investor turnabout, that same ounce of silver now buys three tuna sandwiches – and a large bag of chips! Silver has risen some 360% since 2005. I guess that “crazy little brother” may not be so crazy after all.
As for gold, it has risen roughly 320% over the same period. Both silver and gold prices have gained on central-bank fiat-currency overprinting – namely, the Federal Reserves’ quantitative-easing campaigns.
But when we compare the likelihood of one – silver or gold – appreciating at a faster pace than the other, we must look at the basic law of supply and demand. Consider this:
- Gold supplies expand at an annual rate of about 2%;
- Demand grows at an offsetting rate of about 2%;
- But, world population is growing at 1.13% annually;
- Gold mining output is declining; and
- Gold reserves are depleting 6% annually.
In the first quarter of 2010, Russia bought 26.6 metric tonnes of gold; the Philippines bought 9.6 tonnes in 2010; Kazakhstan 3.1 tonnes; India bought 200 tonnes from the IMF in November 2009; and in April 2009, China “admitted” to having added 454 tonnes to its reserves since 2003.
As for silver, according to the World Silver Survey 2010, silver supplies are keeping pace with global demand, and have done so consistently since 2000.
Conclusion: Silver has had a fantastic run over the past five years, but prices are likely to take a hit on signs of an improved economy, especially since there are no supply constraints. Gold prices, on the other hand, are poised to continue an upward trajectory on declining supply and rising demand, even on signs of an improved economy.
In any case, for the time being, central-bank overprinting and government-debt expansion mean both silver and gold investors may well enjoy nice gains over the coming years.
And one more thing regarding the future of gold: Revelation, the last Book of the New Testament, describes the future City of God – about the size of India – as being made of “pure gold”. Imagine that.
