Gold And Silver’s Time Is Here

If you take a journey down the rabbit hole of precious metals as currency you will note that it is not as stable as many of the precious metal lovers will have you believe. Gold and silver have no real intrinsic value. Value yes, use cases yes, but a God-given immutable value, no.

The gold-to-silver ratio at the height of the Roman empire was about 15-to-1, which doesn’t seem so weird when you understand that silver took a lot more work to extract than much of the gold that was, at least initially, washed out of rivers or melted out of high grade ore, rather than processed like the trickier but more common silver. By the time Europe was about to put itself to the sword in 1914, the ratio was roughly 20/1 and now sits at roughly 90/1. One of the reasons for this is that silver pops out of refining many other metals. Having said that, 10 times more silver is produced than gold so there is a 9x uplift on price when the output is considered. However easy that is to explain away, that factoid remains kind of interesting.

The gold vs. silver story is best summed up in one of my favorite stories. As the Philippines fell in the second world war to the Japanese, the U.S. sailed the gold out in a warship. The silver, they threw into Manila Bay.

Another difference is that silver can be currency because its value enables everyday transactions. Gold, on the other hand, is too heavy for anything but a large transaction so is awkward money. Gold tends to live in vaults, whereas silver can be circulated.

Nonetheless, gold and silver are linked in any investor’s mind. When gold moves, silver is seen as bound to follow. However, it is not that simple. Silver lags then catches up, and depending on the situation it can explode. Some people call it “the fastest horse” but it’s more like the more temperamental horse.

In my mind gold has risen and will keep on appreciating because global tension is almost bound to increase and the road to a moment of discission somewhere in the medium- or long-term. Silver will follow but it will not do so smoothly. As you can see in the above chart, in the past it has lagged and then suddenly exploded to catch up or overshoot. This is likely to continue as a behaviour.

If gold suddenly spikes, silver is likely to outperform because a sudden upwards move in gold will be caused by geopolitics that will grab everyone’s attention and have the worrywarts heading for silver as a more user-friendly precious metal than gold.

Right now you can see the underperformance of silver and this to me is indicative of gold buying coming from governments not the private sector, but you can guess that at some point the private investors will also catch the urge to put some precious metal in their mattress in case of a rainy day.

It makes perfect sense to stack gold and silver as part of a diverse portfolio and there are many user-friendly ways to do so now enabled by the digital world we live in. I’m personally no fan of self-custody but many people enjoy fondling their golden hoard and that is always a popular option.

Gold, silver and platinum go together as fine elements in any portfolio and for a long term stack they are an excellent way to save beyond the long term ravages of inflation, for those who worry it’s about to become creeping again.

Platinum, and for the matter palladium, are the contrarian picks, sneered at by most, so that is where my “buy cheap” soul can’t help yearning for, but in the end whatever precious metal you pick and however you choose to stack it, in ten years’ time you’ll be patting yourself on the back for doing it, and that is what investing is all about: building up your resources to a point of high comfort rather than frittering your reserves away and ending up having to wear a barrel.

Disclaimer: I have gold and silver in my portfolio.