Ask MAX: Gold or Silver

December 8, 2005

Dear MAX,

I hear a lot about buying gold, but what about silver? Is it a better buy and will it appreciate more quickly?


Dear Wendell,

Gold gets most of the precious metals investing attention because gold bugs and other crazed anti-central bank fanatics think that gold is money, not a mere commodity like silver or platinum. Get these quacks going on about the good ole’ days and they will wax poetic about how unstable the world has become since we got off the gold standard — ignoring the 13-fold increase in stock prices and explosive growth in the economy that has happened since Nixon put the gold standard to rest for life (we hope). Meanwhile, gold and silver are still cheaper than they were over twenty years ago.

Why gold remains the object of affection by anti-paper (fiat) money zealots is a mystery other than the nostalgia for the golden age of money. Platinum makes more sense in many ways — its worth more per ounce so it can be hoarded for less money, and smuggled out of a government gone wild with less difficulty. Platinum disguises better than gold — which looks like gold. Platinum is popular with the hip-hop community, who sets the trends in jewelry for many. Moreover, platinum has more industrial uses, notably catalytic converters in cars. Silver’s main use — in the film business — is in decline what with digital photography.

Silver may get a pop shorter term if Barclays Global can get their silver exchange traded fund launched. Two recent gold ETFs helped create demand for the metal itself as billions of investor dollars found an easier way to effectively hoard gold than well… hoarding gold.

Me, the last time I recommended gold funds was in 2001 when nobody wanted anything to do with “stupid” gold — the worst long-term performing fund category in the world (I gave up way, way too early on the great come back in gold as well). I’d consider gold again as a speculation when nobody talks about gold but quacks. Right now it’s way too mainstream a speculation.

Besides, the IRS doesn’t even consider precious metals an investment. When you sell gold or silver at a gain, you pay taxes as if it was a “collectible." It's not an investment where you can benefit from low long-term capital gains rates. Since there will never be a dividend from owning gold, all you can hope for is capital gains. From the IRS point of view, gold and silver is no different than a beanie baby.

Thanks for the question.


Want to ask MAX a question of your own? Send him an email by clicking here. Please include your name and where you live.