The Real Deal: Why Owning Physical Gold and Silver Matters

18th October 2023 | By Taylor Huff

Let’s start by decoding a common misconception: not all silver or gold is created equal. There’s a vast difference between owning a piece of paper that says you own silver and actually holding the tangible metal in your hand.

If you didn’t know, there are two sides to the precious metals market: physical and paper. Physical is physical – you hold it in your possession. Paper is when investors buy contracts, ETF’s, or certificates that give them exposure to silver without actually ever seeing or having control of anything physical. You can do this through a brokerage account at Fidelity, for example.

Imagine two scenarios: in one, you have a safe where you store silver bars. In the other, you have a folder with papers that claim you own some silver. The first is physical silver, and the second is paper silver, represented through one of the financial instruments I mentioned above.

The discrepancy in value between these two forms of silver is interesting. Data from reputable sources like Bloomberg will tell you that the global market claims there’s $5 trillion worth of silver. However, only $20 billion of that can be traced back to real, tangible, physical silver. The remaining vast majority is tied up in the paper market, built on promises and claims. In other words, it doesn’t exist.

So, for every single ounce of real silver out there, there are claims for 250 ounces in the paper market. That’s like having 250 claims on a single seat in a theater. If all those ticket holders show up expecting to sit, 249 of them are in for a surprise.

This skewed balance is a strategy to artificially maintain low prices for silver by large banks and other institutions, like JP Morgan, for example. But it’s a house of cards. The more people demand their physical silver, the clearer it becomes that the demand far outweighs the actual supply. Demand will come as more people lose trust in fiat currency like the US Dollar. This is happening at warp speed right now given current events.

Drawing from a real-world precedent, a significant bank in the Netherlands, ABN-AMRO, was unable to honor its gold certificate obligations. Instead of giving their clients gold as promised, they handed out cash.

As global dynamics shift and countries like China influence the valuation of precious metals, the gap between paper and physical silver’s worth is bound to change. Using the current figures, if we were to base silver’s value purely on its physical presence, its price would skyrocket to a hypothetical $5,000 an ounce.

Real power lies in tangible assets. Eliminating counterparty risks is crucial if you’re dedicating a certain portion of your net worth to act as insurance via precious metals. Owning physical silver and gold is about securing a financial future in a market that’s more illusion than reality.

Written by

Taylor Huff