Silver’s halcyon days may be fading, but gold still looks like it has some spunk.

The basic arguments for investing in gold apply to silver as well. Precious metals act as a hedge against all manner of grim developments, including inflation (or deflation), currency frailty (chiefly the dollar), fiscal chaos (see Greece) and various geopolitical concerns, such as terrorism and civil unrest.

Clearly, gold and silver are trading in a different manner. Silver is more tulip, gold is more, well, gold. Silver’s lower price has made it attractive to smaller investors who find gold a bit out of reach, helping to fuel the metal’s manic trading. Silver is also a smaller market, about one-quarter the size of gold’s, which adds to its volatile nature. And, not least, central banks prefer to hold gold rather than silver in their reserves, another reason why gold trades with more stability than silver.

Silver bulls will argue that the gold-silver price ratio should reflect the 15.5 level authorized by France in 1803, or the 15 level outlined in the U.S. Coinage Act of 1792. It’s more likely that the ratio will revert to modern-era norms rather than race back to the Napoleonic era. And that means that gold, more than silver, looks like the solid store of value today.

Continue reading →