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Gold Price: 1611.52 AUD
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Silver Versus Gold Investment part 2 of 2
Marc: Hi I'm Dr. Marc Dussault and I'm here with the managing director of the Australian Bullion company, and, I'm sorry?
Peter: I said, hey Marc.
Marc: Yes. And his name by the way, and this happens every once in a while when you do these.
Peter: I do like to be polite.
Marc: His name is Peter August.
Peter: Thank you.
Marc: So I apologize for not using his name, because obviously we know each other, but you might not know him. Getting on to this, we're doing a few, a series actually, of YouTube videos. What I have here are some silver bars, and what I wanted to focus on is, you started mentioning something and I stopped you at the end of another YouTube video; talking about silver as an investment. Now, I worked in the printing industry where silver was used for photographic purposes in film. A lot of the industry thought, well, when film goes, the price of silver's going to plummet, because obviously film was a big user of silver components within the actual film manufacturing process.
Peter: OK. I'll just...
Marc: But that didn't happen.
Peter: Well, that didn't happen primarily, because the majority of the silver that was used in the photographic industry was recyclable.
Peter: And that 87% percent, my understanding is, was recyclable.
Peter: So, only 13%, if the photographic industry just fell off a cliff, that's only a 13% drop. Because the rest of it's just reused.
Marc: Sure. It's a big thing for photographic shops to recycle for the content of silver, and that was when silver wasn't worth what it is now. How much is this one kilo, what's triple nine fine silver mean, by the way? What's triple nine mean?
Peter: OK. It's...
Marc: I know what four nines are in gold, but what's triple nine in silver?
Peter: It's 99.9%.
Marc: OK. So 99.9%.
Peter: So it's not as pure as gold, but it's pure enough for investment purposes.
Marc: So as investment grade, 99.9% is good enough in silver.
Marc: This one kilo bar is worth how much right now?
Peter: About $680.
Marc: 680 Australian dollars.
Marc: And this, obviously, is worth...
Peter: Five times that much, since it's five kilos.
Marc: Five times that much, which is about $3,000. So you can get a sense of what this is worth. Now, why would someone invest in silver? As an investor? A lot of people consider gold and silver bullion an investment only for the rich. But in fact, silver has an advantage, or has some benefits in relation to gold.
Peter: Sure. Well, you can buy silver in as little as one ounce pieces. Generally speaking, you'll buy them either in one ounce coin form or one ounce bars. One ounce coins have become very, very popular in the last 20 years. It can cost as little as $25.
Marc: So it's a very low entry point.
Marc: It's fun for the kids, and it's fun for collectors, as well.
Peter: Absolutely. Indeed.
Marc: So that's one reason. What's another reason, from a purely financial perspective? That if you invest $1 in silver versus $1 in gold, what's silver going to do different than gold? We've already had a conversation with gold. A lot of people tell me if you're a gold investor, you're definitely a silver investor. I'm not sure what the average person would make of that statement.
Peter: OK. In percentage terms, I believe silver is going to go up more than gold, for the following reasons. One, most of the silver that's used in industry, is in non-recoverable amounts. Therefore, I haven't got the specific stats, but you have a tremendous amount of silver that's being used in industry that's just completely used up.
Marc: Correct. So once it's used, that's it.
Peter: That's it. It's gone forever. Two, there is actually more, sorry, there is actually less silver above ground than there is gold. Now, there's more that can be mined, but at any given time, there is less silver above ground. Because a lot of its byproduct, its fortunes are based on the fortunes of the larger commodities, in terms of supply.
Marc: Now, we talked about that when we talked about gold.
Marc: Just for people who are just listening to this segment, explain that to me again. Just so that, from a silverist's perspective what that means.
Peter: There are very few actual only silver-producing mines.
Marc: In other words, that you go into the ground looking for silver and coming up with silver.
Peter: There's very few.
Marc: I thought you said there was something like 25%. Or maybe even less.
Peter: Or even less, yes.
Marc: Does that mean, let's say, three out of four mines are mining something else, and go, oh, by the way, here's some silver.
Marc: Now, that's interesting, because if you're not mining for those, all of the sudden, there's no silver, or there's less silver.
Peter: Correct. So that has a large effect on the supply side. The other big reason why people are looking at silver more favorably was, there was a very large overhang of silver in the Market for a long, long time. Because the U.S. government had two billion ounces of silver, it was about 100 years' supply of silver, that it accumulated from the silver rush and gold rush.
Marc: And when was that?
Peter: That was in the 1800s to the early 1900 that they accumulated it, and that supply ran out in 2003.
Peter: So, there was no longer this overhang that some government could come along and dump a lot of silver onto the Market. If you look at the price trend of silver, it started to go up from the time that the U.S. government announced that it ran out of silver.
Marc: We've heard a lot, because this is November 2009, we've heard a lot about the gold price increases made a lot of headlines for a lot of reasons, which we've talked about. How has silver fared in the last decade or so?
Peter: It's fared exceptionally well. You had silver prices in the $3 to $4 an ounce, U.S. We're talking U.S. dollars. That was in the early 2000s. Now you've got silver at around $17 plus U.S. dollars.
Marc: So from $3 to $17.
Peter: That's quite a lot.
Marc: That's 500% or 600% increase in a decade.
Peter: People might think that that is, oh my gosh, I've missed the boat. Well, if you look at the silver price from 1971 to 1980, it went from under $1 an ounce to $40 an ounce, more than $40 an ounce. So it had a 40 plus-fold increase in price. So to see a five-fold increase in silver and a four-fold increase in gold might sound like a lot, but there's a long way to go. In the 70s you had a 38-fold increase in gold price. So there's plenty of upside.
Marc: So there you go. Reasons why you should definitely consider silver bullion within your investment portfolio. Thank you, Peter.
Peter: You're welcome.
Marc: Thank you for listening.