Uncle Mark: Where Should I Put This Money?
(Why Silver Might Be a Better Investment Than Gold) 

TH, a nephew whom I greatly admire because he may be the only nephew who has read any of my books, emailed me to say:

Bonjour!

I hope you are enjoying France and eating some lovely snails.

At the moment, I have some money that I’m not sure what do with. Usually, I’d put it in your Legacy Portfolio, but I am lately feeling I should have some other investment options. I have looked at Gold, which is now at £2,444.85 per ounce, so I wouldn’t be able to purchase much. And based on your lessons on collecting art, I’m thinking that might be another option. However, I feel like the best decision for the long run is the stock market. Are you able to advise me or point me in the right direction please?

Thanks
TH

I told him that I thought his thought about the stock market was a safe bet for the long term because of the sort of stocks I keep in the Legacy Portfolio – but, at the same time, the thought he had about putting this extra cash into another asset class was a good idea.

“The primary benefit of putting this money outside the stock market is not the eventual ROI, but the opportunity for you to begin to explore and understand another asset class now, while you are still young,” I said. “The knowledge you can get from reading about alternative investments is one thing. The knowledge you’ll acquire by investing in them will be deeper and more valuable.

“If you do decide to diversify, I’d avoid art for the moment. First, because art collecting is more complicated than investing in gold. And second, because investment-grade art is too expensive for you now.

“Gold is, as you point out, expensive. But since I see gold as a hedge against inflation and hyperinflation, it doesn’t matter terribly how much you pay for it.

“One thing you can consider is an investment in silver. The value of silver tracks gold in the long run, but sometimes you can buy it as a relative discount. That’s true now.”

I sent him the following argument I found that explains the advantages of silver:

1. Affordability and Accessibility 

Silver is significantly less expensive than gold on a per-ounce basis, making it more accessible for small investors. This lower entry point allows for greater flexibility in investment amounts and the potential for higher percentage gains.

2. Industrial Demand 

Approximately 50% of silver demand comes from industrial applications, including electronics, solar panels, and medical devices. This industrial demand can drive silver prices higher, especially as technology and renewable energy sectors expand.

3. Gold-to-Silver Ratio 

As mentioned above, the gold-to-silver price ratio is currently above 100, meaning gold is over 100 times more expensive than silver. Historically, this ratio averages around 60-70. A reversion to the mean could imply a significant upside for silver prices.

4. Potential for Higher Returns 

Due to its lower price and higher volatility, silver has the potential for greater percentage gains compared to gold. During certain market conditions, silver has outperformed gold, offering substantial returns for investors willing to accept higher risk.

5. Supply Constraints 

Silver mining is often a byproduct of other metal mining, which can lead to supply constraints. Additionally, recycling rates for silver are relatively low, potentially leading to shortages and price increases as demand grows.