Gold Vs. Silver: Which Is Better Right Now?
Gold Vs. Silver: Which Is Better Right Now?
Notes From the Field By Simon Black November 8, 2023
Almost two decades ago, I walked into a coin shop in Florida to buy my very first piece of silver. I was in my mid-20s at the time and just starting to teach myself about financial history, the national debt, and central banking. It was early in my education. But I had already determined that owning precious metals would be a good idea as a hedge against future uncertainty and rapidly increasing government debt. But I didn’t have much money at the time. So silver-- at just a few dollars per ounce-- was well within my budget.
The clerk behind the counter probably noticed my military haircut and seized the opportunity to make a joke at my expense.
“Well, we’re mostly out…” he said, grinning, “but I can offer you a dime bag.”
I assumed this was a marijuana reference and explained to the guy that I had a top-secret security clearance and didn’t go in for that sort of thing.
But he laughed and explained that he was actually referring to a bag that was literally filled with dimes.
I still didn’t get it.
But the clerk was kind enough to teach me that, prior to 1965, dimes in the United States were minted with a silver content of 90% (with the other 10% being copper). He then pulled out a sandwich bag full of dimes, weighed it, and showed me how to calculate the silver content based on the bag’s weight.
A one-pound bag, for example, contains 200 pre-1965 dimes, each with about 2 grams of silver content. That’s a bit more than 13 troy ounces of silver per one-pound ‘dime bag’.
I held onto that bag for several years, until 2011 when silver prices went through the roof. And I ended up going back to the very same dealer to trade the dime bag for a little bit of gold.
(I’ll explain why I did that in a moment-- it had to do with the gold/silver ratio.)
Precious metals in general have been excellent investments over the past twenty years. But I believe there’s a strong case to be made that gold and silver prices could go much, much higher from here.
Gold’s rise will be fundamentally driven by rapidly deteriorating US government finances. And I’ve written about this extensively.
The US national debt is now $33.7 trillion; the debt is so large that the Treasury Department spent nearly $900 BILLION on interest payments in the last fiscal year (FY23), which ended about six weeks ago.
That number alone-- $900 billion in interest payments-- is astonishing.
But even more astonishing is that FY23’s interest bill was 22% MORE than the previous fiscal year, and 56% more than the interest bill from the year before that!
Think about that: a 56% increase in interest expense in just two years?
One reason, obviously, is out of control spending. I mean… these people always find an excuse to overspend by trillions of dollars. First it was COVID. Then it was inflation. Then it was Ukraine. Now the Treasury Secretary insists that America can “certainly” afford to fund two wars at the same time.
All of these expenditures result in insane increases to the national debt, which drives up annual interest expenses.
The second issue is the rapid increase in interest rates.
Two years ago the government could borrow (and refinance) at practically 0%. Today they have to pay around 5%.
Now, remember that almost the entire US public debt will have to be refinanced over the next few years.
So if rates remain at 5%, and the debt keeps rising, this means that the annual interest bill could reach $2 trillion over the next few years.
Don’t take my word for it. The Congressional Budget Office’s most recent forecast show that annual interest payments, plus mandatory entitlement spending (i.e. Social Security and Medicare) will consume over 100% of federal tax revenue… by 2031.
Then Social Security’s primary trust fund will run out of money two years later, in 2033.
The consequences of this mess mean that, most likely, the Federal Reserve will slash interest rates and start printing trillions of dollars again in order to bail out the government.
And this will most likely result in inflation… as well as a severe loss of confidence in the US dollar around the world.
The dollar has been THE dominant reserve currency since the end of World War II. But history tells us that reserve currencies CAN and DO change. This time is not different.
So it’s very likely that the dollar could lose its dominant reserve status... and be replaced by a universally accepted asset like gold.
Gold is already an informal reserve asset; it’s why central banks and sovereign governments around the world stockpile it by the metric ton. So it wouldn’t be much of a paradigm shift for gold to become THE formal reserve asset.
In this scenario, gold would likely skyrocket to $10,000 or more.
Then there’s silver… which also has upside potential for the same reasons as gold. Silver is a precious metal too and tends to perform well in an inflationary environment.
And should gold become a formal reserve asset, silver prices will likely soar as well.
But I explained on Monday that there are other forces to drive silver higher. Greta Thunberg and John Kerry are among them.
Climate fanatics who insist on transitioning to 100% clean energy like solar completely miss the fact that producing near infinite solar panels will require unfathomable quantities of key minerals… including silver.
Because silver is an essential ingredient in the production of solar panels, these climate fanatics are creating massive, artificial demand that could drive silver prices much, much higher.
And this takes me back to the gold/silver ratio.
There’s a strong case to be made that both gold and silver could achieve significantly higher prices in the future. And each metal has its merits-- it’s not really a competition.
But at the moment, silver is priced more attractively.
Traditionally, the price of gold relative to the price of silver has been about 50:1 to 60:1; but this gold/silver ratio often fluctuates. When I traded my silver for gold back in 2011, the ratio was less than 40… meaning that gold was cheap relative to silver.
In the early days of COVID back in March and April 2020, the ratio shot up to 120:1, meaning that silver was very cheap relative to gold.
(We also published an alert to our premium members back then about how to capitalize on silver’s cheapness and nearly double their money in a matter of months.)
Right now the gold/silver ratio is hovering just below 90. That’s fairly high… suggesting that silver is pretty cheap relative to gold.
So, while there are strong cases to buy either one, at the moment, silver has a more attractive entry price. It’s worth considering.
To your freedom, Simon Black, Founder Sovereign Man