SILVER 101 – Making The Transition From Silver To Gold
by Al Doyle for CoinWeek ………
According to popular wisdom and common sense, beginning precious metals investors who lack large budgets should purchase silver before venturing into gold. This is very logical for a number of reasons, but it leaves an important question unanswered: When does the silver buyer make the switch to the yellow metal?
This is a question many silver investors will never have to ponder. If a person has to scratch and scrape to come up with the funds for a few ounces of “the poor man’s gold”, moving to the next level may not be a realistic option. Anyone who finds themselves in this position shouldn’t be too unhappy. What’s wrong with steadily building a nice stash of silver? People all over the world have accumulated impressive amounts of coins, rounds and bars in just this manner. The turtle who never quits plodding in the precious metals race can be a winner over time.
What about the new investor who could step up an make a gold purchase right out of the starting gate? Buy at least some silver instead at first. Here’s why.
At current spot prices ($1282.40 and exactly $20), the gold/silver price ratio is 64.12 to 1, which is far above the pre-1980 norm of 15 to 17/1. Even if silver never returns to the old ratio, it wouldn’t be hard to imagine the spread tightening to something in the 30 to 1 range. Silver now sells for higher premiums than gold, so the real world ratio is more like 55 to 1, but the less expensive precious metal still looks like the better option for value-minded buyers.
There are other reasons to own silver along with gold. People who see the metals as economic insurance and a barter item if things go south (it happends all the time outside the U.S.) will need smaller units for trading. Think how someone would stand out when things hit the proverbial fan if they were waving around a one-ounce gold piece at a street market where shady and desperate characters abound. The penalty for being so indiscreet and unaware may be huge.
Have you ever heard a bit of wisdom that was so logical and concise that you wished you could take credit for the gem? That’s exactly what a veteran coin dealer in a western state came up with when customers asked when they should switch from silver to gold. His advice? “You’ll know.” What kind of Zen non-answer is that to a serious question?
When the dealer explained his standard reply, it made perfect sense. “Every individual is different when it comes to how much storage space they’re willing to dedicate to silver,” he said. “For some people, a small box is as much as they want to store. Other people don’t have a problem with stashing bags of silver. It all depends on how much space you have and how much you like silver as compared to gold.”
There’s one scenario where gold outshines silver even if the price ratio seems to favor the less expensive metal. Its high value to size ratio makes gold the choice as flight capital or for vault storage. Many Vietnamese refugees came to America in the 1970s with their savings in gold. That decision proved to be far wiser than holding what turned out to be worthless paper currency, and hidden gold coins and bars provided the immigrants a good start on their new life.
Taking the wise dealer’s advice cam save a person a lot of mental gymnastics about allocating funds between gold and silver. Trust your instincts. You’ll know when it’s time to make the move.