Value of Silver vs. Value of the Dollar

Value of Silver vs. Value of the Dollar: What’s Rarer than Gold?
A Daily Reckoning White Paper Report by Greg Grillot 

DO YOU HAVE an implicit, unswerving trust in the government-assured value of the dollar? If so, please don’t waste your time reading this essay.

But if you have even a sliver of doubt in the ever-dwindling value of fiat currency…if you fear the ravages of inflation…or if you’re interested in some non-paper based capital protection and possible appreciation…please read on. You might find a compelling, unique opportunity today.

Value of Silver vs. Value of the Dollar:Now, Trade Your Dollars for Actual Gold and Silver

(I’ll give you a hint – it’s a new, simple way to trade your dollars for actual physical silver and gold. It’s a way for you to personally return to the cherished and forgotten gold standard. It’s one way you can personally return to sound and honest money – even if the government doesn’t.

It’s not a stock, ETF, option or futures contract. The possible profits from those investments are real. And, although those profits would derive from special metals – they take value from the market value of a piece of paper. And when you get right down to it, paper make a poor substitute for the real thing. If you can get it, it’s even better to to own a real asset – ownership backed by tangible, dense, truly rare precious metals. But first, let’s quickly go over the case for gold and silver as money, with particular attention paid to silver.)

Let’s start with the dollar’s forced debasement. It’s the main reason holding a small percentage of your portfolio in real precious metals is not just important, but urgent. Gold and silver protect you against the inevitable decline of hollow paper money. They insure you against inflation. Today, inflation’s nearly as certain as death and taxes.

Did you know that today’s dollar can only buy about 2% of what it could buy in 1900? Compare that to gold, which today buys 150% of what it could in 1900. So, in roughly a century, gold has catapulted to 75 times as much purchasing power as the dollar.

The government’s promise of a stable dollar reeks. Like the breathless pledge of a toothy codger to a hooker. Not sober. Not to be trusted. And it’s certainly not something you should rely on for your investment future.

The value of gold and silver does not hinge directly on a promise from a government’s central bank. It is not a promise to pay. It’s just gold and silver. The real thing. Those precious metals form a safe haven for your wealth, protecting you from the horrors of inflation and the destruction of paper currencies.

In addition to offering unparalleled protection in today’s uncertain financial world, gold and silver actually can offer you a powerful opportunity to increase your wealth. You can protect yourself AND profit from the right exposure to these precious metals. It’s an excellent combination — killing some of your risk and adding the possibility of gains…

But just how likely is a rise in the gold and silver prices? After all, both metals have had good runs lately. Is the best behind us? Not at all. In fact, according to some, a second, even more powerful leg of the raging precious metal bull is nearly inevitable.

I’m assuming you know about the stellar recent run-up in gold. It’s doubled in a short period of just over 3 years. Silver’s done slightly better than gold in the same period of time. But there’s an alarming fact about silver that you have most likely never heard…

Value of Silver vs. Value of the Dollar:Above the Ground, Silver is Rarer Than Gold

That’s right, silver is rarer than gold. But now you ask “Greg, you dolt, why the heck does an ounce of gold cost 54 times as much as an ounce of silver?” I’ll get to that in a moment, but first I’ll show some more about silver’s relative rarity.

There’s less above-ground silver than gold…the main reason for that is the fact that nearly all dug-up silver immediately goes to industrial use. Silver’s one of the most useful elements on earth, with incredibly high thermal and electric conductivity.

In addition to the rabid industrial hunger for silver, the world’s Central Banks, including America’s, have sold off or used up the vast majority of their silver stockpiles. America ran through her reserves to issue popular silver coins. It didn’t seem like a waste at the time because the price snoozed at low levels throughout the mid-eighties to the early nineties.

Today, industry uses only 5% of exhumed gold. And, obviously, gold’s industrial use only grew out of the industrial era. For over 2,000 years, hard money, jewelry, art and other lasting artifacts formed the sole uses for gold.

That means nearly all of the gold ever yielded by the earth sits in gold bars, coins, or jewelry, shining through the ages with pride. All while almost every unearthed ounce of silver perishes in industrial use.

(Now, an army of grinning grannies could liquidate their heirloom tea sets and serving spoons with $25/ounce silver. I wouldn’t want to get in their way. But such an unpredictable unloading would unlikely have a lasting effect on industry’s necessary inventories of silver.)

That’s why there are 1.6 billion ounces of gold inventory compared to only 300 million ounces of silver inventory. That’s 5.33 times as much gold as silver. For the sheer heck of it, let’s translate that into dollar value…

At $554 per ounce, the entire gold inventory has a worth of $886.4 billion. At $10.33 per ounce, the entire silver inventory’s worth $3.1 billion. So, the total mass of above-ground gold’s dollar-worth outweighs silver’s by 285 times. Even though silver’s five times rarer.

And, there’s no argument I can recite that explains why silver’s not as good an inflation hedge or dollar-bastion as gold. You probably remember that the British Empire measured the first world reserve currency, the pound sterling, in silver.

In fact, if the argument for a precious metal’s worth takes its power solely based on rarity, then you might think that silver should be worth MORE than gold. And yet, ounce per ounce, gold’s 5.33 times more beloved than her slighted silvery sister. Of course, if more people start figuring this out and begin to stockpile silver for wealth protection and appreciation purposes, then silver might equalize herself more with her glistery sister.

And, although silver’s ramped up on a tear, hitting a 22-year high…even though the silver market’s notoriously volatile, it could have even more explosive mid to long-term upside if its price equalized more with gold’s.

This kind of situation makes the case for higher silver prices based on pure supply and demand. But, you probably have heard the mutterings about a possible silver ETF from Barclays that would buy bullion directly, similar to the gold ETF with the symbol GLD. Now, that new ETF would definitely put a strain on the already slim silver inventory supply.

Value of Silver vs. Value of the Dollar:Overnight, You’d Have Demand for Millions of Ounces of Silver

That anticipated strain scares the heck out of industrial silver users. Which explains their ferocious opposition to the proposed ETF.

In fact, multiple interesting theories swirl around whether or not the silver ETF will gain regulatory approval. Such as: where could the huge amount of silver necessary to line the ETF’s vaults come from? Does some billionaire, maybe Buffett, have a huge silver stockpile sitting around? Why are the silver users so adamant about in opposing the ETF? Does someone have a bunch of naked short contracts out there?

It’s enough to get a conspiracy-minded fellow extremely giddy. But I’m not here to speculate about whether or not the silver ETF will get SEC approval. I think the price of silver has a good chance of going up. ETF or not.

If the silver ETF does list and trade sometime this year, your potential gains from buying shares in it would take a swift hit from the huge 28% collectibles tax, not the usual 15% or so that usually hits your other stock market capital gains. So, to get a lower tax rate, an investor would have to buy it through an IRA or other similar vehicle.

Moreover, the ETF would take a 0.5% annual management fee, paid to itself by selling the silver bought in the fund. Thus, the amount of physical silver represented by each ETF share held dwindles incrementally year-by-year.

Wasn’t one of the main benefits to precious metals investing an escape from the dollar and “paper” profiteering? With an ETF, any gains you could possibly make by an increase in silver’s price would eventually convert back into dollars – the ETF won’t deliver the silver bullion to your house.

Value of Silver vs. Value of the Dollar:Introducing the Bank Account Made Up of Silver and Gold

Don’t get me wrong. Gains are gains. But in some sense, for real hard money bugs, a metals ETF is a temporary dollar “laundry machine,” not a permanent store of wealth.

Profits from purely financial assets are easy come, easy go in this fluid world. It’s enough to make you want to get your hands on some actual silver.

It just so happens that there’s a fresh, new way to buy actual silver coins and bullion bars. It comes from Whiskey & Gunpowder ally EverBank.

EverBank has just launched a new “bank account” that’s made up of physical silver or gold. You can easily convert your paper dollars right into real, dense bullion and coins. You can even take delivery of the actual metals if you so desire.

And, unlike a mining stock or ETF, with EverBank Metals Select you can buy or sell your silver or gold close to the spot prices of those metals. It’s the closest and most direct connection I know of an investment’s price to precious metals themselves.

There are 2 ways to jump in on this innovative new opportunity: you can choose a pooled account or holding account. The pooled account contains a mix of coins and bars of your favorite metal. There are no management, custodial or insurance fees – and you’re free to buy or sell your holdings at any time the market’s open.

The holding account offers you more direct control over your investments. With it, you can decide exactly which kinds of bullion bars or coins you want to hold – but you’ll pay a storage fee for the holding account.

Best of all, you can open a Metals Select account for as little as $5,000. That’s cheaper than 210 shares of Pan American Silver and it’s less than 100 shares of the gold ETF. And, don’t forget, you pay very close to the spot price of silver or gold when you open your account, add to it, or sell your holdings.

Those are huge advantages if you decide to open a Metals Select account. You’re getting this new opportunity because EverBank wants to create the best bank on the ‘net. Your Whiskey editors already think they ARE the best bank out there. And we try to work with them whenever we can, through our ongoing business relationship. We’re proud to call them a partner.


Greg Grillot

The Daily Reckoning