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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houtskool
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houtskool

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… Read more »

SteveW
Guest
SteveW

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… Read more »

houtskool
Guest
houtskool

You’re welcome. SRSRocco got me on track of the energy ‘problem’.

Sean
Guest

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/

silverfreaky
Guest
silverfreaky

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.

David
Guest
David

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.

Joe
Guest
Joe

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
Guest
Wyatt Earp III

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

OutLookingIn
Guest
OutLookingIn

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
Guest
Huh Really

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… Read more »

yuan abet
Guest

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

Robert Happek
Guest
Robert Happek

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,… Read more »

Reader
Guest
Reader

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.

SteveW
Guest
SteveW

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… Read more »

Hector
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Hector

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… Read more »

SteveW
Guest
SteveW

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… Read more »

David
Guest
David

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.

Robert Happek
Guest
Robert Happek

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… Read more »

Reader
Guest
Reader

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.

SteveW
Guest
SteveW

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

Reader
Guest
Reader

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… Read more »

eric
Guest
eric

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.

Hector
Guest
Hector

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 🙂

Saxon
Guest
Saxon

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.

Charles Savoie
Guest

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.

Silver Muppet
Guest
Silver Muppet

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

M D
Guest
M D

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… Read more »

Hector
Guest
Hector

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… Read more »

David
Guest
David

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.

Jerry
Guest
Jerry

“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.

Ronny
Guest
Ronny

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.

Ronny
Guest
Ronny

should be 70:1 ratio of course

Wyatt Earp III
Guest
Wyatt Earp III

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.

kelly stillwell
Guest
kelly stillwell

GOD told me $5000.00 per ounce !!!

Hector
Guest
Hector

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) 🙂

David
Guest
David

“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.

Hector
Guest
Hector

“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… Read more »

David
Guest
David

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.

Hector
Guest
Hector

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?

David
Guest
David

“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

Ross
Guest

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/