Butler's latest public piece: A Nervous New World examines why silver should outperform other hard assets during a crisis.
There's really nothing to add as we agree with everything Butler states in this piece.
My sense is that the European debt crisis and the clash over the US debt ceiling and deficit have had the unintended consequence of instilling doubt in the minds of many where that doubt never existed. Confidence is a tricky thing; hard to earn, easy to lose. Perhaps people should have been more concerned about debt and financial matters earlier, but more are currently as a result of recent headlines. This undermines the confidence needed to continue to buy and hold paper debt obligations. Maybe this confidence is not lost overnight, but it does erode gradually and enhances the chance a panic will come at some point.
In a genuine financial panic, it is hard for me to conceive how people won’t flock to hard assets, particularly precious metals.
There is less silver bullion inventory in the world than there is gold bullion inventory; around one billion ounces of silver versus three billion ounces of gold. Common sense would suggest that an item more rare than another similar item would reflect that relative rarity in price. While silver has vastly outperformed gold over any reasonable time period over the past ten years, the rarity of silver is vastly underappreciated. I would guess that maybe one out of every million of the world’s inhabitants knows of this fact. Even among those exposed to the rarity of silver compared to gold, few accept it. Inevitably, as more come to learn and appreciate this startling fact, more will choose to invest in silver.
After subtracting the industrial and other fabrication usage of silver and gold, the amount of each “left over” and available for investment the attraction of silver becomes clear. Who cares if more silver is produced if most of it is spoken for by industrial and other fabrication consumption. Very few people consider silver in this perspective. As time progresses, more will.
The most important factor to consider in deciding between silver and gold is the price of each. Because gold is so much more expensive than silver, the dollar valuations of each are distorted. At current prices and the amount of gold and silver bullion inventories in the world, there is more than 120 times more gold in the world than silver in dollar terms. What this means, among other things, is that it takes a lot more money to move the gold market than it does to move the price of silver. That’s probably the biggest reason for why silver has been outperforming gold. There is nothing on the horizon to suggest that will change anytime soon.
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