The case for silver and gold

Precious metals, namely gold and silver, have been backed by many to be a safe haven amid economic uncertainties. Currently, there are so much uncertainties surrounding investors like the US debt ceiling debacle, China’s raging growth and inflation and debt problem in Greece, among others. The price of silver and gold has been rising through the roofs and they have been breaking new highs frequently. As of Friday’s closing, gold is at US$1631.20/oz and US$40.10/oz for silver.

I have been a firm believer in silver and gold since I started reading a book called “Guide to Investing in Gold and Silver” by Michael Maloney back in July 2009. Michael Maloney belongs to the “Rich Dad Advisors” founded by the famous Robert Kiyosaki. I was converted after reading the many explanations espoused in the book. The one thing that is etched in my mind is that paper money can be printed whenever needed but gold and silver cannot be “printed” and is at a limited supply in the world. Paper money is backed to nothing – just thin air, but gold and silver will not lose its value at all.

Many value investors, including Warren Buffett, doesn’t believe  in buying gold and silver. Warren Buffett once said that he doesn’t buy into them as he doesn’t know how to value them unlike businesses. Below is what Warren had to say during a CNBC interview on 2nd March 2011:

BECKY (CNBC reporter): Well, speaking of gold, though, we’re looking at gold prices and they were at another record high. They’re up another $3 today, $1,434 an ounce. And there have been some big fat hedge fund managers, like a Paulson or a David Einhorn, who have really buckled down on these bids. Why would you steer clear? And do you think what they’re doing is the wrong thing?

BUFFETT: Well, I just don’t know. I don’t know whether cotton’s going to go up.


BUFFETT: I mean, we use a lot of cotton. I’ve watched it go from 80 cents to $1.90. You know, we use a lot of copper and I’ve watched it go from $2 to $4-plus, so I mean there’s all kinds of things in this world that are going to go up and down in price. You know, maybe hamburgers will tomorrow. And – but I – I’m – I don’t know how to judge that. I do know how to judge to some extent the earning power of some businesses. And the real test of whether you would like it as an investment is whether you would be happy if it never got quoted again, and just in terms of what the asset did for you. But that doesn’t – I will say this about gold, if you took all of the gold in the world it would roughly make a cube 67 feet on a side. So if you took all the gold in the world, we could have a cube that went down there 67 feet…

BECKY: Uh-huh.

BUFFETT: …67 feet high and that would be the whole thing. Now for that same cube of gold it would be worth at today’s market prices about $7 trillion. That’s probably about a third of the value of all the stocks in the United States. So you could have a choice of owning a third of all the stocks in the United States or you could have a choice of owning that little block of gold, which can’t do anything but kind of shine there and make you feel like Midas or Croesus or something of the sort. Now, for $7 trillion, there are roughly a billion of farm – acres of farmland in the United States. They’re valued at about $2 1/2 trillion. It’s about half the continental United States, this farmland. You could have all the farmland in the United States, you could have about seven Exxon Mobiles, and you could have $1 trillion of walking around money. And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, you know, I mean touching it and fondling it occasionally, you know, and then saying, you know, `Do something for me,’ and it says, `I don’t do anything. I just stand here and look pretty.’ And the alternative to that was to have all the farmland of the country, everything, cotton, corn, soybeans, seven Exxon Mobiles. Just think of that. Add $1 trillion of walking around money. I, you know, maybe call me crazy but I’ll take the farmland and the Exxon Mobiles.

For myself, I believe in gold and silver and will keep them for the longest term. I believe that the value of these metals will only rise due to the fundamental reason that they cannot be “printed”. What are your thoughts? Please share them in the comments section.

Author: Sudhan P

I simplify investing concepts to help you navigate the stock market jungle.

16 thoughts on “The case for silver and gold”

  1. I share Buffett’s view, and therefore will not purchase Gold as I do not believe it is an investment. Now that Gold Prices are hitting new highs, many people are coming out to say that “they were right”. But time will tell if they are right.

    1. Hi MW,

      You don’t invest in gold because you want to follow Buffett closely or because gold doesn’t resonate with your style of investing? I feel currently gold is under much speculation and it might be in a bubble. Well, like you said, only time will tell…

  2. Contrary to what many believe, Gold price does not go UP during crises. Look no further than the 2009 sub-prime crises.

  3. Hi financiallyfreenow,

    I do not know what can you really do with gold, and why is gold worth so much. In my opinion, water, air and sunlight should be priced at a higher premium that gold. Though by doing so, it is somewhat unethical. Gold are just for decoration.

    I still prefer to own something that produces something that people can appreciate, generates profits (dividends), and grows in size.

  4. silver is consumed while gold is hoarded.
    i believe silver has a higher potential for growth over gold long-term, provided demand for silver continues to climb

    gold prices is set primarily by investors, while silver prices are primarily set by silver consuming businesses

  5. In 1979, when the vietnamese boat people escaped by sea in tiny fishing boats, the currency they used to pay the vessel owners is defintely not paper ;)

    Theory and practical application of knowledge :)

    5000 years of human experience versus recent experimentation with the Bretton woods agreement.

  6. i am just getting into the silver investing… i am just a young 24 year old but i have done my share of research….. silver is used in alot of diff. things… alot of electronics…. and of course there is only so much silver they can mine… so i think silver is the way to go….. I am no big time millionare but i do buy silver bars and rounds as much as possible…. about 25% of my check is used to buy silver bullion…. i sure hope i am makeing a good investment…. if what i have been reading silver may reach the 500 an oz mark some time in the next 10-15 years… if i continue buying my bullion every chance i get it adds up…. some weeks i buy 10 oz some less some more but i do hope it pays off in the future… i am not looking for a quick buck i am looking at a long term investment op… something i can use when i some day retire lord willing…. what do you think buddy im i being wise?

    1. Hi mgs0520,

      Thanks for visiting my blog and for your comment!

      For the long-term, silver might have potential as it cannot be “printed” unlike money. It can be used as a store of value. I’m not sure if it can reach $500/oz but I have turned to prefer stocks to silver as stocks provide cash flow on top of capital appreciation. If you believe in silver, all the more go for it. I also recommend you to read the book “Guide to Investing In Gold and Silver” by Michael Maloney. Cheers!

      1. i will look into getting that book… thank you, if there is any other websights or mabey info you can give me in investing in silver that would be great… like size amounts? brands? i usually go for the 1 oz should i go for the bar or round? or the .999 silver legal money>? you know what i mean… i think im going to stick to the bullion but what size should i look into? i have read that eather 1 oz or half oz are the best… whats your take? and rounds, bars, both? currently i have both…

  7. Buying silver bars is actually quite easy in SIN. Selling them is the problem though. I might be able to sell it back to the vendor who first sold it to me, but it is hardly unlikely that they will buy it at spot rate. I think the effective transactional cost is at least 20%. So unless silver goes from USD30 to at least USD50, it’s going to be hard to breakeven.

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