Silver the Other Monetary Metal

Like gold, silver has a venerable monetary history. Often referred to as the “poor man’s gold”, it has a Biblical pedigree,  Judas having allegedly betrayed Jesus for 30 pieces of silver.

Again, like gold, silver has been moulded into coins for centuries. However, unlike gold, except in special applications like gold plated electrodes, silver has also been used industrially. Until the advent of digital photography, silver enjoyed a pre-eminent use in the development of photographs – and the silver remains were washed away down the drain. The consequence was that the amount of above ground silver has been diminishing over time. This is in contrast to the situation with gold, where almost all the gold that has ever been mined is still present above ground today, in the form of jewellery or gold bars in Fort Knox or elsewhere.

There is a ratio of gold vs silver prices per ounce, which currently stands at around 70 as per the graph below. This is a pretty high value; the long term historical average is around 16. This means that, currently, silver is undervalued in comparison to gold.

Gold/Silver Ratio Chart

As for ways of investing in silver, there are several approaches, by and large paralleling the approaches one might take to investing in gold.

  • Firstly, one can buy physical silver bullion, from an accredited supplier, such as the NZ mint.
  • Secondly, you can speculate on the Silver futures market (if you have deep pockets).
  • Thirdly, you can look at funds such as the Central Fund of Canada. This is a closed-end fund (ticker symbol CEF on the AMEX) which backs its share price by (audited) holdings of gold and silver. Currently the fund holds gold and silver bullion in a certain ratio. However,  they are in the process of establishing a silver-only fund. Because they are fully audited, this is the safest investment in gold and silver that you can make, outside the realm of holding physical bullion.
  • Fourthly, you can buy shares in an ETF, such as the i-shares silver trust (SLV on the NYSE). Be warned however, that questions abound as to whether the shares are adequately backed by physical bullion, as is supposed to be the case.
  • Fifthly, you can buy shares in silver mining companies. As is the case for gold mining companies, there are royalty companies, producers, developers, and explorers. We will have more details for you later.

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