Silver vs. Gold: Industry vs. Investment

A bullish view on Silver Prices via a bearish view on gold...

VICE-PRESIDENT of marketing in North America for Heraeus Precious Metals, the German-based refinery group, Miguel Perez-Santalla doesn't buy the idea of Gold Investment taking prices much higher from here.

Silver Investment, however, isn't as crucial as industrial use – now growing strongly, he says.

Here Miguel Perez-Santalla talks to Mike Norman at Hard Assets Investor about what he's starting to see silver now that prices have shot to 30-year highs...

Hard Assets Investor: Putting gold to one side for a moment, what's your overall outlook on the other precious metals?

Miguel Perez-Santalla: Well, first off, all the precious metals are following along with Gold Prices, and the weakness of the Dollar, which is another thing holding up the precious metals markets. But there are some very strong fundamentals behind silver.

Silver consumption has gone up greatly. And there's some tightness in the physical market, though the mines are delivering more. And it takes time for it to hit the marketplace. And that's because a lot of the electronics industry and the jewelry market are growing tremendously, and because of the price of gold being so high.

HAI: As a substitute...?

Miguel Perez-Santalla: Yes, as a substitute. So there's a lot of demand for silver. It has a very strong fundamental [outlook]. And I think that even if gold drops percentagewise, silver should hold on to more of its gains.

HAI: Now silver's trading around $23 an ounce, but was $50 at one time back in 1980.

Miguel Perez-Santalla: But that was market manipulation. The Hunts' cornering of the silver – or attempted cornering. It didn't work out so well once the CFTC got involved.

HAI: Wouldn't you think there would now be pressure or desire to see more controls put on the market? The commercials in the market, who have to deal in this, and the jewelry industry, for them it's hurting...

Miguel Perez-Santalla: Well, what's interesting about that is being someone who believes in the free market. At the same time, there have to be rules and boundaries set in place to protect industry, and to protect the individuals. And for instance, when investment money is going in large quantities into these metals, who's paying for it in the end is the consumer.

For instance, palladium too is also reaching all-time highs. Well, it hasn't reached all-time highs; it reached $1000 in 2000. But it's very high right now. And why? Because of the investment money. Otherwise, it wouldn't be as high because the primary consumption of palladium is the automobile.

HAI: So that speculative element pushes up the price, and that's passed along to consumers.

Miguel Perez-Santalla: There have to be rules. Just like a football game. You and I – I'm a short little guy and you're a tall, big guy. If we were playing football together, you'd cream me. It wouldn't be fair.

HAI: You'd probably run right past me.

Miguel Perez-Santalla: But that's what happens in the marketplace. Now we have big bullies playing in the market, which are the banks and the funds with their investment capacity. They could just outrun the small guys, and the small guys get crushed if they don't join the herd.

HAI: Well, that's the thing. And they have been joining the herd in quantities that continue to grow. So you're feeling is that they're going to end up being disappointed.

Miguel Perez-Santalla: Well, at a certain point it's going to turn. It's going to turn. Just like the tulip scare in Holland back in the 16th century or whatever it was.

HAI: Right, which devastated the whole Dutch economy.

Miguel Perez-Santalla: Right. When a house sold for one tulip bulb, that was insanity. And that's the kind of thing we're seeing now. Because really, what do you do with gold? If the jewelers can't sell it, and it's getting too expensive to use...

HAI: You're saying there's no intrinsic value to it?

Miguel Perez-Santalla: Well, there is...It's beautiful. Gold is beautiful. But before King Croesus decided one day that gold was worth 15 head of sheep, no one picked up on gold. But that day when gold became a currency is when it got its value. Unless the government empowered decrees that it has to be money, and exchangeable in the public hemisphere, it's not money.

HAI: What do you think about the fact that the production of gold – and we just kind of agreed that at least right now it has no intrinsic value – the production of gold uses up real resources...

Miguel Perez-Santalla: Well, there's a flip side to that. Obviously, it's producing and consuming all those things, and creating jobs at the same time. There are jobs created around any industry. So I'm not going to knock the entire Gold Mining industry. And there is a demand for gold and jewelry and whatnot. But now the demand has created a bubble, and it's not being used for its primary, core fundamentals. So that, in a way, is true. Yes, it's driving away resources from other areas where we should be exploring and investing our monies.

HAI: Very interesting. Thank you, Miguel.

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