Physical Silver Or Gold: Which Offers The Best Opportunity Today

Includes: GLD, SLV
by: Doug Eberhardt

I was quoted recently in an article written for Fox Business called; "The Lowdown on Buying and Selling Silver." In that article I was recommending a 75% allocation to physical gold and a 25% allocation to physical silver for that portion one wanted to diversify into precious metals. This is the allocation I recommended when I first wrote my book, "Buy Gold and Silver Safely," in September of 2010. This begs the question, does this same allocation hold true for today with the decent size pullback we've had in the price of silver compared to gold this year? This article will answer that question.

The Physical Silver Opportunity Today

Right now, silver offers a great opportunity for investors, possibly more so than gold. This is because the volatility has brought silver down off its high of $49.50 that it hit earlier this year to the low $30's where it resides today. Presently, silver is offering a $17 discount to that almost record price achieved earlier this year. I'm not against putting 50% of one's allocation of precious metals into 90% silver bags as these can presently be had for about 1% over spot price offering you the most silver for your money.

Secondarily, the one ounce American Eagle silver coins, which have a higher premium to them because of the cut back in the amount allocated to gold dealers. The larger, 1,000 ounce silver bars are also perfect for one's IRA as they offer the lowest cost to spot for the type of metal allowed in one's IRA.

If you are younger, you can handle the extra volatility that comes with owning silver. Silver has performed quite well the last 10 years, much better than the DOW. Silver has returned 5.9% thus far in 2011, compared to a loss of 2.6% for the DOW. Even with the paltry dividends paid by the DOW, silver has far outperformed these large cap stocks.

The Gold Opportunity Today

Gold is held by all Central Banks. Silver is not. Yes, silver is an industrial metal, but it is gold that is considered money the world over more so than silver. For this reason, especially because of the Central Bank ownership of gold and the perception (wrongly) that this gold backs a countries currency, gold is a less volatile, more conservative investment than silver even with the continual mocking of gold by journalists on CNBC.

If you are older, you want to protect what you have saved and worked hard for your entire life. This is why I recommend 75% into gold and 25% into silver for this group of people. It is insurance against the inevitable unsustainable collapse of many facets to our economy that I have been continually writing about on my blog. Gold also has done better than CD's the last 10 years, even though you have not received any interest income from the gold. See the article I just wrote; "Bank CDs vs. Gold – Which Will Offer Better Return Moving Forward?"

Gold is up 20.5% thus far in 2011 and will more than likely finish its 11th straight year higher (it would have to drop $285 in price not too surpass last year's closing price).

The only type of physical gold I recommend are the one ounce American Eagle coins. They have a premium to spot that all gold dealers have to pay to the U.S. Mint, but the buy back on these coins is about $40 above spot. How many stocks do you own that have a higher buyback price than the current bid? Of course, no one is selling their gold at present so the buyback price for now is moot.

Gold bars are ok for IRA's as they do offer a decent premium to spot, but I still prefer the ease of liquidity with the American Eagle coins. Note: some dealers won't even buy gold bars back so this is a question you should always ask.

Conclusion - Which Offers the Best Opportunity; Physical Silver or Gold?

The answer depends mostly on your risk tolerance and age. Are you a tortoise or a hare when it comes to investing?

If you are older, even if the hare investment in silver might have the propensity to perform better, you might not be able to handle the ups and downs that come with silver's performance. You would instead prefer the tortoise approach and stick with gold (or at least a majority in gold).

If you are younger, at least at the present time, silver can and probably will have the propensity to move higher, faster than gold. Once silver does break its all-time high of $50 an ounce, it should shoot quickly up to the $60 range. When it does, to lock in some profit, you might want to consider taking the proceeds of half the silver allocation and converting it into the more stable gold investment. This will especially be true if gold is lagging a bit.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Long physical gold and silver.