The Precious Metal Favored During A Financial Crisis Isn’t Gold

Many of the top precious metal analysts state that gold is the premium asset and insurance hedge during a financial collapse.  We hear this time and time again.  However, if we look at the data during the near collapse of the U.S. Banking and financial system in 2008, gold wasn’t the most sought after precious metal.

Before the failure of Bear Stearns, Lehman Brothers, Merrill Lynch and AIG (2008), physical gold and silver investment was minimal.  For example, in 2007 total physical gold investment was 438 metric tons (mt) while investors purchased 1,605 mt of silver.  This translates to 14 million oz (Moz) of physical gold investment versus 51 Moz of silver.

But, the very next year as the U.S. and world financial system experienced a heart attack, physical gold and silver investment surged.  Even though physical gold investment more than doubled to 913 mt, silver investment demand skyrocketed to a stunning 5,826 mt.  This can be clearly seen by the physical silver-gold investment ratio in the chart below:

Silver vs Gold Investment CHART new

Investors purchased 6.4 times more silver bar and coin than gold in 2008 compared to 3.6 times in 2007.  Basically, gold bar and coin demand doubled in 2008 vs 2007, whereas physical silver investment nearly quadrupled.  Then in 2009, overall physical precious metal investment demand (and the ratio) declined as the Fed and Central Banks used massive monetary injections to bring stability back into the global economic and financial system.

However, demand for physical gold and silver continued to increase along with the rise in the prices of the precious metals during the next two years.  Shown in the table below, physical gold investment increased to 1,222 mt in 2010 and 1,569 mt in 2011, while silver surged to 4,457 mt and 6,550 mt respectively:

Silver vs Gold Investment TABLE

As the price of gold and silver remained in a narrow trading pattern in 2012, physical demand for the metals declined.  Actually, demand for silver declined more in percentage terms than gold pushing the silver-gold ratio to a low of 3.2 that year.  But during the great take-down in the prices of the precious metals in 2013, demand surged to new records for both.  Investors purchased 1,765 mt of physical gold bar and coin (56.7 Moz) and a staggering 7,577 mt (243.6 Moz) of silver.

Unfortunately for the West, it was the Eastern investors taking advantage of the bargain basement prices.  Here is the breakdown of 2013 gold bar and coin investment demand according to the World Gold Council:

EAST vs WEST Physical Gold Investment 2013

EAST = 1,054 mt

WEST = 337 mt

Note:  EAST = (India, China, Japan, Indonesia, S. Korea, Thailand & Vietnam)  West = (USA, France, Germany, Switzerland & Other Europe)

Lastly, physical silver investment was the second strongest compared to gold in 2014 as investors purchased 6,096 mt of silver compared to 1,064 mt of gold.  Thus, the silver-gold ratio increased to 5.7 in 2014… the second highest in the decade.

In conclusion, the notion that gold is the premium SAFE HAVEN during times of financial crisis doesn’t seem to hold true if we go by the actual data.  When the U.S. and world stood at the brink of a total economic and financial meltdown in 2008, investors overwhelmingly choose silver over gold.   Which means, when the next much more dire financial crisis appears, physical silver demand will more than likely totally overrun supply.

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44 Comments on "The Precious Metal Favored During A Financial Crisis Isn’t Gold"

  1. Silver acts like gold on steroids, upwards as well as downwards. In case of a monetairy meltdown silver will exceed gold in $ or € profits, but what to do with those paper fiatskies? Uncertain times tell me to own both, physical of course. FOFOA is about gold, and gold only. But he believes that gold will float freely in a new system, against fiat currencies. I think silver won’t be a official monetary metal, but it will be hoarded by the masses when the time comes. Maybe Mexico will back the Peso with silver….? Anyway, i read a rather disturbing piece from a Santa Barbara university student, interesting times ahead.

    Here’s the piece:

    http://www.global.ucsb.edu/climateproject/publications/pdf/Morrigan_2010_Energy_CC4.pdf

    • Houtskool,

      Thank you for that post. The paper is consice and very detail. A MUST read for anyone concerned vabout peak oil and its consequenses. The Executive summary says it all;

      “We are in a crisis in the evolution of human society. It’s unique to both human and geologic history. It
      has never happened before and it can’t possibly happen again. You can only use oil once. You can only
      use metals once. Soon all the oil is going to be burned and all the metals mined and scattered.”
      – M. King Hubbert1, geophysicist and energy advisor Shell Oil Company and USGS, 1983

      SteveW

    • When it all comes down, there will be precious few assets left standing… PHYSICAL silver and gold ought to be a part of every thinking person’s portfolio. The alternative, as Bill Holter points out, isn’t very good. Thanks Steve! ~SGT

      This is HOW People Will Lose EVERYTHING
      http://sgtreport.com/2015/05/this-is-how-people-will-lose-everything-bill-holter/

  2. silverfreaky | May 18, 2015 at 1:30 pm |

    http://www.goldseiten.de/artikel/245333–China-hat-wieder-US-Staatsanleihen-gekauft-Belgien-Bestaende-massiv-reduziert.html

    China bought again US-Bonds.So much to the theory that china will fight the USA.I never believed this nonsens.

    • All countries have fiat currency. If the dollar goes down so does the Yuan.

      But we will have a major currency crisis regardless of how hard China or U.S. tries to prop up fiat.

  3. Is it sensible to compare the investment between gold & silver in metric tonnes? I mean it is natural investors will buy more silver than gold as it is a lot more cheaper, hence more investors/savers can afford it.

    If investors buy silver 70 times more than gold, then yes I would say silver is more favourite. Right?

    • Wyatt Earp III | May 19, 2015 at 8:32 am |

      My thought exactly. This article makes little sense to me.

      • OutLookingIn | May 19, 2015 at 9:10 am |

        Gold = The money of kings
        Silver = The money of gentlemen
        Barter = The money of peasants
        Debt = The money of slaves

        Gold and silver are like a hand and a glove and have been, for thousands of years. The recent trading action in precious metals, gives you a silver/gold ratio of 92:1 Using a comparison of demand dynamics between silver and gold, will give you a very good clue in which direction the ‘investment wind’ is blowing.
        If this concept seems difficult to grasp, then you have not been paying attention.

        • Huh Really | May 20, 2015 at 9:10 am |

          The silver:gold ratio is approximately 70:1 which makes silver a Buy based on traditional ratios of anywhere from 13:1. Realistically it will revert to a more normal level, maybe 30:1, at which time we can expect silver investors to dump silver for gold. Gold holders may well be selling right now and buying silver to benefit from this high ratio. The question seems to be, how will the ratio close, will silver rise dramatically, gold fall, or both rise at differing rates?
          Certainly both gold and silver prices are so close to break-even or loss for miners that it seems unlikely that prices could drop much further, so I’m thinking we’ll see the pendulum begin to move in the other direction, taking PM’s higher. Once the herd starts to sense that ‘we have a problem’ then demand could see prices increase significantly.

      • Wyatt Earp,

        Why don’t you really tell me what you think of the article… LOL. Of course, if we go by the current paper value of gold and silver investment, gold is much larger. However, we in the precious metal community realize that buying gold and silver is a TACTIC of OUNCES, not the PAPER PRICE.

        Furthermore, in 2005 total physical silver investment was 51 Moz compared to 640 Moz of global mine supply. Thus, physical silver investment was 8% of total mine supply in 2005. During the peak of physical silver investment in 2013 at 244 Moz, it now comprised nearly 30% of total mine supply.

        We must remember, most of silver is consumed by industrial fabrication. Very little gold is consumed by industrial applications. So, this is a battle of BUYING OUNCES, not current paper value.

        steve

  4. Last 2 reports not coming to email.Thought you should know.

    • yuan abet,

      Yeah, we had a problem with a new plugin for the site. It screwed up several functions of the site, including the automatic feedburner function that sends new posts to my email subscribers. However, as you can see in the email, it sent three posts (one new & two older).

      My web developer fixed the problem and the site is now back to 100%.

      steve

  5. Robert Happek | May 18, 2015 at 6:28 pm |

    Regarding the fact that the East bought more Physical Gold than the West, although true, that fact is misleading because it does not take into account the huge disparity of the population size. The east counts close to 3.2 billion people, while the West barely reaches the 0.5 billion figure. Taking that into account, it turns out that on a per capita basis, the west bought TWICE as much physical gold as the East did.

    Regarding silver, it is true that when counting ounces, people bought more silver than gold. However, when looking at Dollars spent on buying that silver, the amount spent on silver was something like 15% of the capital invested in gold. So clearly the demand for gold was much much larger than the demand for silver.

    There is a problem with silver: Silver is to cheap in order to store say $300,000.00 in silver. When you do that, you discover that stuff is really heavy and requires lots of space to store. The same amount of money invested in gold (250 ounces of gold) can be lifted by any young man and the amount of space required in order to store that gold is very small.

    The best investment from the point of view of preserving capital long term is actually high quality art. Famous paintings will always be desired and bought by the powerful and the wealthy. Even the church has invested lots of money into art as paintings represent a powerful message to glorify power and wealth. There is a reason why in the first commandment, god says we are not allowed to make a picture of the face of God.

    The advantage of paintings over precious metals is: Very easy to hide and to transport. Try to transport the equivalent of $160 million (the most recent price paid for a painting of Picasso) in
    precious metals and you wil understand why the truly wealthy prefer art to metals.

    • Silver weight is purely a matter of perspective. One can load about 25 tons of silver on pallets in a standard shipping container, and it is still storable, liftable and mobile. That is about $14M in value.

    • Robert,

      Your observations regarding gold and silver are right on the mark. Point being, investing in PMs needs to be balanced. When TSHTF You can’t buy a loaf of bread with an ounce of gold, or even an ounce of silver. You will need change. Spend any time in a third world country and you come to appreciate the need for making change. So own a bunch of 90% silver coinage, partial gold ounces (1/10, .25oz, etc.). It is hard to use a 100 oz, bar of silver in everyday commerce.

      As for FINE art, it is only for the uber rich, who can sell that stuff between themselves and feel real good about it. I inherited a bunch of “fine art ” in the $10K to $20K range in 2009 and it is worth half of what it was five years ago. Would have been better off selling it at the time and buyting PMs.. You can’t eat a Van Gogh or trade it for anytthing useful. For all of us regular people, you are far better off with land, especially land without debt. If you have enough money, clearly silver is not the simple answer. You must hold gold as a practical matter. If things get really bad, fine arts will be worth nothing, PMs will always be worth something.

      Buy for cash and stash

      SteveW

    • I’m just going to ramble some random thoughts…

      While I totally agree with your comparison between storing/transporting physical silver vs. gold, I think Art is a pretty dumb one (if you are extremely affluent, maybe it would make sense, but….)

      Now, I am a hardworking person with graduate level degrees, but I am from a hardworking blue collar family, so I may be biased towards things which are considered “refined” or for the “uber-wealthy.”

      The advantage of precious metals over paintings, and any other statue or whatnot, are their natural STRENGTHS. Whereas it may be easy to hide art and statues, they are easily burned and broken. I can wipe my @ss with a painting, that is about as much as I care about an original painting, because I can enjoy a replica equally as well for one googolth (does anybody know how much that is for the Picasso?) of the price (but like I said, I am not “refined” – I’ll drink Pabst Blue Ribbon over expensive wine/spirits any day)

      You can melt silver and gold, but you would have to nuke it to destroy it. When you melt it, and it cools, you still have silver and gold. They are more maleable than diamonds, but that is fine with me.

      Also, what about paintings as a means of exchange? If we were in a global recession, and faced food shortages, and your family was starving, would you trade your Picasso for some food? Would you be able to find a buyer? There is serious liquidity issues with paintings, so I’d rather dig some silver out of my back yard, which I known there will always be a market for.

      Now, in terms of the record selling price, does it really matter? It’s valuation is based in dollar terms, or fiat currency, and when you have central banks with QE policies and money sloshing around, it will probably sell for billions when hyper-inflation hits, but eventually the unit of measure of fiat currency will not matter.

      You and Joe both make good points in regards to the comparison of gold versus silver sales. Silver is much cheaper than gold, so comparing it to gold on a metric tons basis may not make sense.

      I didn’t really follow your statement, “However, when looking at Dollars spent on buying that silver, the amount spent on silver was something like 15% of the capital invested in gold. So clearly the demand for gold was much much larger than the demand for silver.”

      At face value, it makes sense, but since you are using dollars as a measure of value…..does that even make sense, as we invest in silver and gold to protect ourselves from fiat currencies and their depreciation in value.

      But then again, you have to consider scarcity of precious metals in the world, and of course ENERGY required to get those precious metals. So making comparisons on a metric tons basis, and remembering Silver has industrial use (which isn’t a huge variable, but a variable nonetheless), then maybe it does make sense.

      Like I said, I’m just rambling, and no offense to art lovers, I am just unrefined.

      Steve – what do you think?

      • Hector,

        I think ypu are on the right track. You need about 2000 oz of silver, 25% in silver coinage. Silver dollars, Half dollars, quarter, nickels (expensive) and dimes). 25% in Silver 10 oz.bars. All of the rest in Silver Eagles – the Gov will probably not try to take US minted silver. After that you need to buy gold, it is a storage and portability problem. A few ounces in gold change, 1/10 ozs., 1/25 gold ozs., 1/2 ozs, and the rest in Gold Eagles. Uncle Sam will have a harder time seizing US minted PMs without a huge hew and cry.

        If you buy for cash from your local PM dealer, don’t get A RECEIPT, pay cash and stash your buy. No bank boxes or records. Bury it in the bacvkyard or whaever.

        Buy for cash and stash

        SteveW

    • There are many problems with art as a store of value, such as who has tens of thousands or more per piece of art? Unlike gold or silver that can be buried, art has storage issues. Then if one tries to sell it there is a very tiny number of buyers.

  6. Robert Happek | May 18, 2015 at 6:41 pm |

    Steve, may I suggest that you write an article about the problem of storing silver ? There is no problem of storing the equivalent of a few thousand Dollars in silver. However, storing the equivalent of a 1 family house in silver is a real problem. One solution is to buy silver from places like goldmoney.com or buillionvaut.com. However, these places charge a non-trivial amount for storing silver. After 10 to 20 years a significant amount of the silver is lost due to the cost of storage.

    So storing silver is a problem. I would like to read an article where this problem is investigated seriously and practical solutions to mitigate the problem are suggested. I gave up on silver after having accumulated 2000 ounces of silver. To heavy for me. I prefer gold and platinum simply because I will always be able to lift my accumulation in these metals.

    • Let’s say that house is worth $1M, or about 2 tons of silver. That is two full stacked pallets, about one square meter area and knee high at most. As long as it fits into one shipping container (about 25 tons load), there is no problem — the infrastructure for handling containerized cargo is everywhere.

      • Reader,

        When TSHTF there will not be containerized services. The simple answer is buy gold!
        If you didn’t buy gold when it was only 16-20/silver/oz , then when gold is below 50/1 for silver buy gold. Balanced investment is the ANSWER. I personally don’t buy platinum, palladium or rhodium

        • True. The right choice depends on the purpose of buying that metal. If it is profit, that implies an expectation of improvement after TSHTF, which implies a certain limit in time and severity of the crisis. An unmarked container of silver will easily survive that, unlike vaults in banks. If the purpose is evacuation of value and its owner, that implies an intolerable duration and severity of the crisis, and gold is preferable to silver due to greater mobility. However, based on the same assumption, gold is hardly the asset of choice in that situation. The best investment, and the greatest value, would be safety — a safe place in a distant location, far from the crisis and its duration. In that safe place it would be equally convenient to hold a container of silver or a few suitcases of gold — as a supplemental asset in addition to the core asset of safety. In the middle of TSHTF situation it would hardly be a difference between the two metals, as the most valued thing (from a recent experience at certain places) then is an airplane ticket. In short, preparation for TSHTF is somewhat more complex than a choice between the two metals based on their mobility.

    • This made me want to crack an icy Pabst’s and listen to the Kinks’ ‘Art Lover’ while re-counting my 25 oz. stash . Yep still 25, oh well more than most I guess.

      • My stack is small too. I wish i had storage problems, etc. 🙂

        If only they would only accept student loans as a form of payment. 🙂

        Until then, I keep drinking the PBR and counting can tabs 🙂

  7. One thing to keep in mind about silver, it is making a comeback as the best antibacterial agent known. It has many other health benefits as an aquasol compound in nanoparticle size. As bacteria mutate and become penicillin resistant, silver becomes the only effective remedial cure.

  8. Today I bought 814 silver dimes, bringing my total to (unspecified). Dimes are the most fractionated form of silver besides jewelers silver casting shot, which of course can’t compete with coins as a medium of exchange.

  9. Silver Muppet | May 19, 2015 at 4:36 am |

    Steve, why do you suggest 2000oz. of physical silver? I am just curious why that number? Is the breakdown as you described into certain types of physical silver do to the fact certain times will require certain uses. I.E. junk silver for barter in early economic collapse and eagles and bars once the new system is running to swap silver for ” currency of the realm”?

    Silver Muppet

  10. What I don’t understand is why no one seems to be recommending CREDIT UNIONS;
    Too Big to Fail? The Dinosaurs are Now Extinct!!!
    Don’t Like What the Banks are doing??
    MONEY out of banks into CREDIT UNIONS….
    http://en.wikipedia.org/wiki/Credit_union
    In part;
    Tension has always existed between member-owned cooperative credit unions and for-profit banks in the United States. When credit unions were first organizing in the US in the early 20th century, the banking industry was opposed, remaining so ever since.
    The FDIC does not provide deposit insurance for credit unions, which are insured by the National Credit Union Administration (NCUA).
    https://en.wikipedia.org/wiki/National_Credit_Union_Administration
    The National Credit Union Administration (NCUA) is the independent federal agency created by the U.S. Congress to regulate, charter, and supervise federal credit unions
    http://en.wikipedia.org/wiki/Credit_union
    A credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.[1][2][3]….
    Not-for-profit status
    In the credit union context, “not-for-profit” should not be confused with “non-profit” charities or similar organizations.[20] Credit unions are “not-for-profit” because they operate to serve their members rather than to maximize profits.[21][22][23]
    SO WHY DO YOU STILL HAVE YOUR MONEY IN A BANK!!!

    • YES! YES! YES!!!!!!!!!

      M D – you are 1,000,000,000,000% right!

      Ever since the repeal of Glass-Steagall, which changed the definition of a “bank” (banks can make risky bets in markets, and investment banks, which already make risky bets in the market can act as banks), changed the game of what a bank is truly supposed to be.

      A real bank account is a place where you can deposit money, which allows you to earn interest (I know…not much going on there), take out mortgages and auto loans (yet the requirements ARE MUCH MORE stringent), and every member is a member of the union. Because they are chartered and owned by more affluent individuals, they are risk averse, and they put profits back into the bank to reduce the fees and/or cost of services of individuals, or into the community via scholarships, etc. NOT ridiculous bonuses. Not ridiculous gambles in the market.

      I can’t speak for all credit unions, but every credit union I have been a member of has operated in this manner. Credit Union deposits are backed by the NCUA, just like the FDIC deposits are backed, but the NCUA probably has a lot more money after 2008.

      End of the day, I *only* bank at credit unions for personal and business banking, because if there are bank runs, it won’t be at a credit union. I know my money will be there. They won’t have to do “bail-ins.” MOST IMPORTANTLY – when major banks gamble and lose, it is questionable if individual depositor money is at risk, whereas, credit unions do not get themselves into those messes (maybe an occasional business loan, but no derivatives).

      I am a huge fan of credit unions, and I highly recommend them over a traditional “bulge bracket” bank.

      • Yes, a credit union is better than a bank.

        However they still function with dollars; in the future a highly toxic fiat currency. When there is a confidence crisis and a reluctance to accept fiat [for example dollar devaluation or hyperinflation] one is still screwed if they have dollars in a credit union.

      • “if there are bank runs, it won’t be at a credit union. I know my money will be there ” .

        You can only hope.

        “They won’t have to do “bail-ins.”

        Many smaller banks also will not have to do bail-ins either.

        “credit unions do not get themselves into those messes (maybe an occasional business “loan, but no derivatives).”

        Some credit unions do have derivatives.

        I have no problem with a good credit union but my good local community bank is in better financial condition than the credit unions in my area.

  11. 5x more silver ounces bought than gold in the midst of the crisis. True.

    However, in value terms taking Au:Ag ratio as 1:70, that means 14x more paper currency fled in gold vs silver.

    So it depends from which angle you look at it…

    Bottom line: grab both barbarous relics with both hands for as much and as long as you can.

  12. Wyatt Earp III | May 19, 2015 at 8:35 am |

    Steve, you keep repeating the same grammatical mistake in many of your articles.

    ” investors overwhelming choose silver over gold.” [makes no sense]

    should be:

    “investors overwhelmingly choose silver over gold.

    • Wyatt Earp,

      Yeah, I know. There are several things I am good at…. grammar isn’t one of them. Actually, I know better to put “overwhelmingly”, but I suffer from the Archie Bunker syndrome. I think of a word, but something else comes out.

      Unfortunately, I cannot afford an editor to find these mistakes until I monetize the site. So, my readers will just have to put up with it for a while longer. While I do reread and catch some mistakes, some fall through the cracks.

      I actually enjoy doing the research and making the charts the most. Don’t get me wrong, I do like to write, but it’s doesn’t come as easy for me. Anyhow, it’s best to have another set of eyeballs to read ones work as they can find mistakes much easier.

      Thanks for the input.

      steve

  13. kelly stillwell | May 19, 2015 at 10:06 am |

    GOD told me $5000.00 per ounce !!!

  14. Just a general comment in regards to coinage denominations, the Actual Silver Weight of a Roosevelt silver dime is 0.0723.

    If the price of silver goes to $100/oz, then a silver “junk” dime is only worth $7.23 melt value.

    This doesn’t put a dent into a person’s purchase of groceries one week, depending on where you shop.

    This also assumes no change in price, i.e. no hyper-inflation, which may be a bad economic assumption (unless you write articles for MSM or any FED bank except Atlanta) 🙂

    • “Just a general comment in regards to coinage denominations, the Actual Silver Weight of a Roosevelt silver dime is 0.0723. If the price of silver goes to $100/oz, then a silver “junk” dime is only worth $7.23 melt value. This doesn’t put a dent into a person’s purchase of groceries one week, depending on where you shop.”

      I don’t see your point. The buyer can use any multiple of dimes. They may be exchanged for the currency du jour [nuevo dollars and stainless steel coinage??], or used in barter with one that will exchange something for silver.

      • “I don’t see your point. The buyer can use any multiple of dimes. They may be exchanged for the currency du jour [nuevo dollars and stainless steel coinage??], or used in barter with one that will exchange something for silver.”

        I don’t disagree, but a currency crisis due to the massive printing of fiat must be accompanied by hyper-inflation. Who knows how much silver will be valued at, but the higher they are, the more dimes you’ll need, so IMO, I would stick with larger denominations. If there is a “nuevo dollar” then you can exchange the larger coinage/bars for more of your nuevo dollars.

        • Have both!!

          What if someone doesn’t have change for an ASE, Maple, etc.? One doesn’t want to spend an ounce of silver for a gallon of milk, gasoline, loaf of bread, etc.

          • Agreed – having different options is the best approach.

            Although have you noticed the premiums for Roosevelt silver dimes on eBay?

            A dime’s MV at this moment is $1.24, but a single dime auction on eBay is $2.99 and up! That is a hefty premium on a single dime.

            I still go through bank rolls with a machine, but does anybody know a more cost effective way to buy 90% silver aside from eBay?

  15. “I still go through bank rolls with a machine, but does anybody know a more cost effective way to buy 90% silver aside from eBay?”

    Just go through a local dealer, or an online dealer such as this example:

    http://www.providentmetals.com/bullion/silver/us-slv/90-slv.html?dir=asc&order=price

  16. Savvy investors know that the current gold to silver ratio, once again, could signal a possible value play coming soon. These investors add to their positions, but in the right metal – silver. Doing so gives them the security of holding a portion of their hard earned wealth in “real money” as well as an opportunity to generate substantial profits from buying the right metals based on the gold to silver ratio. Learn more at http://silverlease.com/investing-in-silver/

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