Categories
Blog Tags

Blog

Gold vs. Silver for Investing and Barter

12/13/2012 by Badger Peak

Precious metals are often part of a well rounded battery of preparations. Whether you view them as an investment, or a hedge against inflation, or simply a universal currency, there are some things you need to consider.

First, let's get one thing out of the way. We constantly hear people say, “I'd like to buy gold or silver, but I'm not going to buy while they are at historical highs”, and those same people laughed at us for buying gold when it was $800 per ounce. Google “inflation adjusted gold price”, and you'll find plenty of good accurate charts. As I write this, Gold is at $1694 spot price per ounce, and gold is still not at historic highs. Not by hundreds of dollars! The same is true of silver, but at lower dollar amounts, of course. With that out of the way, let's continue.

There is significant debate about whether precious metals are an investment (they will increase in true value), or just a hedge against inflation (they represent true value, so when gold is high, it's not really high, the dollar is just low). In either scenario, gold and silver have some benefits in a failing economy.

Let's say, for example, that you have a $100,000 mortgage on your home, and you own $20,000 worth of silver or gold. Signs of a faltering economy and mass printing of paper money drive the price of precious metals up 500% (it happened before and can happen again). Whether the dollar weakened or your metals increased in true value is irrelevant. You now have $100,000 worth of gold or silver, and should you choose, you can waltz into your bank and own your house outright today; And it really only cost you $20,000 to pay a $100,000 mortgage!

On the other hand, that same faltering economy could drive food, gas, and other prices up 500% as well, and your $20,000 worth of metals would buy you the same amount of goods that it would when you bought it. Of course, you're still way ahead for having bought the metals, because without them, your $20,000 in cash would have the buying power of just $4,000.

In the first case, the precious metals were an investment, and in the second, they were just a hedge, depending on how it was spent. In both cases, you'd be much better off owning the metals than not. It's clear that owning precious metals during economic turmoil is a good thing, but which is best, gold or silver?

Gold has a very strong history of being considered valuable across continents, cultures, and millennia, so it's reasonable to assume it will continue as a reliable store of value. Silver shares a similar, but slightly less robust history. The long term difference between the value of the two lies in what they are use for. Gold is primarily used to look at, that is, for jewelry and other decorative applications, with roughly 35-40% of the world's gold being sold to India, where religion and culture have made gold jewelry and trinkets an important part of everyday life.

The key here, is that gold isn't being used up. In fact, of the 165,000 metric tons of gold believed to have ever been mined in human history, about 90% of it is still accounted for! Silver on the other hand, is being used up. Well over 60% of all silver mined today is used in industrial applications, and new industrial uses are being discovered every day. Some of this silver can be recycled, but most will end up in landfills when the product containing the silver is disposed of.

In a world where value is driven by scarcity, this leads us to a conclusion as sure as gravity. In the long run, silver will increase in true value more than gold will. How far out or how “long”, that long run is, is anybody's guess, but in the long run, there's no escaping the numbers.

For day to day barter transactions, silver coins or rounds are far better, simply because of their lower per-coin value (are you really going to pay for that meal with a several thousand dollar gold coin?). Gold however, has it's benefits as well. It's a much more compact store of wealth- about 50 times more compact. If you have a lot of money to move somewhere, it's going to be much harder to move if it's all in silver.

So what does this mean for preppers? For those who plan to stay put, we recommend people put the bulk of their metals money in silver at about an 80/20 ratio,with the 80 being silver and the 20 being gold. This will give you the best potential increase in value and the easiest barter denominations, while slowly building a supply of gold so you can make use of its unique advantages. If you plan to move, or leave the country, or if you just have a lot of money, you might increase the gold ratio to make your wealth easier to store and transport.

Either way, take physical possession of your gold or silver! Don't buy metals and have some brokerage house “store” them for you. On several occasions, these firms have been caught running a fractional reserve system with metals, meaning they sell far more coins than they actually have! When you want the coins you bought, they may not be there. This isn't exclusive to small shady outfits, but includes the biggest and most trusted firms as well.

Remember to get your physical preparations in order before you buy precious metals. It makes no sense to buy silver that you will later trade for food and equipment, when you could just buy those things now while they are readily available.

0 Comments

Leave a Reply

Join our Newsletter
0 Items
$0.00

Free Shipping on Orders Over $99!

(To the lower 48 states only. Excludes firearms, ammunition and Simple Pump.)