Is Silver the New Gold?

With the falling rate of the dollar, and many other world currencies in turmoil, people are starting to return to the origins of money by investing more heavily in precious metals. But are gold and silver really as steady as some would like to believe, and is gold the way to go? A recent article by Peter Schiff weighs in on the issue.

According to Schiff there may soon be a shift from the use of gold to silver as a reserve asset. The state of the current world economy has led to a slide from developed markets to free markets in metal. While many countries are embracing this change, and profiting from it, the US has thus far held firm to the declining developed markets, driving us further into poverty. Gold has long been the metal of choice among investors, but its main constraint is that it is primarily useful as a precious metal. Silver, on the other hand, is effective both as a precious metal and an industrial metal. These days, silver is used as an input in many high-demand electronic products including touch-screen phones and batteries. The current demand for silver outweighs the supply of it by nearly 170 million ounces a year, illustrating that in time it may become a scarce resource, and thus highly valuable. Although gold is still worth far more per ounce, silver is no longer such a far second and the growing demand for silver may cause the gap to lessen even more in future years.

But what does this mean for our economy? Schiff also makes some  rather dire predictions as to the future of the falling US economy, alluding to a possible crash. His suggestion is to invest in silver now, as silver would make a more reasonable cash substitute for everyday transactions than gold. In his own words, "[silver] also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups." Although I carry a somewhat more optimistic view of the future US economy, Schiff makes some very valid points. Should we start using gold and silver as money, it would be more convenient, and less risky, to carry silver coins rather than gold.

Worldwide the demand for precious metals is steadily increasing. Could this be the start of a switch from fiat money back to the use of metals as commodity money? The rapid decline of the US dollar may force the US economy to make the switch, which might incite other countries to do the same. It may very well be that currency has finally come full circle back to commodity money which, if the cycle continues as before, could later transition into fiat money. And if the latter revolution occurs it may very well be that we could finally end up with a single world currency.

(Posted by Elizabeth Hope)