Silver, Gold, and Stocks: Considerations for the Savvy Investor

Many investors are becoming increasingly wary of the stock market and other “securities” due to their, well, insecurity as investments. While stocks, mutual funds, and other such investments often show larger returns during times of prosperity, they’re built on a very shaky foundation that is wholly dependent on people’s attitudes, beliefs, and fears.

The first sign of trouble, and the value of these securities tends to plummet.

We’ve seen it time and time again, in major events like the Great Depression and the more recent Great Recession, and on a smaller scale during the “normal” up and down cycle of the stock market. Speculation in a company drives prices higher when people are confident in the future, then sudden fears can render any given stock worthless practically overnight.

Unlike stocks or even currency—paper money—precious metals like gold and silver have intrinsic value: their value isn’t solely determined by the market’s belief in their current value and speculation/fear regarding the future. Silver and gold are tangible, and there is a natural limit to the amount of supply, making them very different from paper stock certificates and dollar bills.

This is why many savvy investors include precious metals in their portfolios, especially at times when the stock market is threatening another downturn.

Scarcity and Illiquidity Make Silver a Safer Investment

Investing in precious metals like silver and gold is a controversial and contested topic, largely due to the fact that it is misunderstood. Detractors like to point to the volatility of precious metals markets and the major up- and down-swings of silver and gold spot prices as evidence that these metals are inferior investment tools.

Properly understood, however, this volatility and the factors behind it are what make precious metals—and silver especially—such safe investments for those hoping to store and build value over the long-term.

First, though gold and silver markets might show somewhat more volatility than stock markets, with major trends changing more frequently and at times more abruptly, there is a bottom limit to this volatility. As mentioned above, there is a natural limit to the amount of silver in the marketplace—it is a finite resource, and more cannot simply be created to meet demand.

This scarcity is what drives silver’s intrinsic value. While a stock’s value is determined solely by marketplace beliefs in its value, silver’s value is determined largely by the market’s demand for silver and the amount of physical silver available in the supply. As long as demand for silver remains higher than the available supply, silver will have value.

Demand for a stock can easily drop to zero; we saw several stalwart companies fold up and become worse than worthless in the recent financial crisis. Demand for silver has remained strong throughout human history, and due to new industrial applications it is in more demand than ever. The price of silver will never fall to zero or anywhere near it, no matter how volatile the market gets.

There are certainly ups and downs to the silver market, but there will never be a flatline signaling that silver is dead—something that can’t be said of any stock or stock market.

Second, much of silver’s volatility is a product of its illiquidity—the fact that it cannot be traded quite as quickly or easily as stocks or even gold. In short, there are fewer buyers for silver than there are for stocks and gold, which means selling silver at its full current value takes marginally longer than selling gold or stocks.

While it’s easy to see this as a negative quality on the surface, it actually creates great opportunities for those who buy silver at the right time and who can be just a little bit patient when it comes time to sell. In truth, selling silver is still quite easy and near-instant, and the fact that there’s a more select pool of buyers also means there are fewer sellers—and that can give you a major advantage over other investors.

If you buy silver when market demand and therefore price are low, you’ll be one of relatively few investors with silver on hand to sell when demand and price skyrocket—as they do every time the stock market takes a dip.

Why the Gold to Silver Ratio Makes Silver a Great Immediate Investment

When it comes to wealth-creating and -protecting silver investment, it’s all in the timing. When stocks are soaring, silver slides its way down, and that’s the right time for savvy investors to get in on some precious metal action.

Silver is especially attractive right now due its low trading price relative to gold. The gold-to-silver ratio is frequently used to asses silver’s value relative to other investments; over the long-term (meaning centuries), this ratio averages out to a fairly steady 15- or 16-to-1. One ounce of gold is typically worth the same as 15 or 16 ounces of silver, in other words.

Today, not only is silver trading at low prices relative to it’s spot price over the past decade (silver is far cheaper now than it was during the depths of the Great Recession) and relative to the stock market, but it is also trading very low relative to gold, with a gold-to-silver ratio hovering between 60- and 65-to-1. Instead of one ounce of gold being worth 15 or 16 ounces of silver, one ounce of gold is worth 60 or more ounces of silver.

That’s a situation that is likely to correct itself soon, and there are only two ways for that to happen: the price of gold to plummet incredibly fast, which is unlikely, or the price of silver to rise while gold stays flat or drops slightly—a far more likely scenario. For that reason, silver is an especially attractive wealth-generating investment given current markets.

Learn More About Silver Investments

This article only scratches the surface of how silver investing can work to your advantage, and what you need to know about precious metals markets. To get the latest information about silver opportunities, and to keep yourself informed about silver investing from the basics to more advanced concepts, please read our other blog posts and be sure to check back regularly.