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By Jeff Reeves: A DOW JONES COLUMN

There are several reasons to love gold right now. From the twin specters of a weak dollar and commodity inflation, to the recent all-time highs north of $1,430 an ounce, to returns that doubled the broader market in 2010.

Yet investors who focus on gold and ignore silver could be missing an even better bet. Demand and performance numbers show that silver is beating gold handily right now and has been for a while. What's more, a look at the uses and possible supply bottlenecks of silver shows that this metal could have an upside gold may not enjoy in the new year.

While both gold and silver have rolled back recently--a 5% decline for silver and a 3% decline for gold since Dec. 31--there's no doubt many investors are considering the drawback little more than a pause before the commodities skyrocket once more.

Don't be fooled by gold's glitter. Here are five reasons silver may be a better play for your portfolio, and several investments to capitalize on the metal's run.

1. Silver's performance

Silver has lapped gold's gains better than three times over the past year, with appreciation of about 79% compared with 24% for gold. Silver also has better long-term performance, with three times gold's run in the past 20 years. Specifically, silver has posted gains of about 637% since early 2009 compared with 255% for gold in the same period.

Remember, past performance is no guarantee of future results. But a look at just about any time frame over the past few decades shows that silver has outperformed gold. Another annual gain of nearly 79% may be a bit unrealistic, but if you think precious metals are on the rise, you should bank on silver instead of gold.

2. Silver production bottleneck

According to historic estimates, about a century ago there were about 12 billion ounces of unmined silver. In 1990, commodities research firm CPM Group pegged that figure at 2.2 billion ounces. But today, that figure has fallen to less than 1 billion ounces in above ground refined silver--a number that's shrinking every day. Recycling is common for silver, but the dwindling supply of metal in the ground is creating a bottleneck.

The concept of the petrodollar has proven to be not only dysfunctional, but unsustainable as a whole. The Petrodollar's grasp has been challenged throughout the world in recent decades and has thus lead to political attacks and even war. American inflation will continue to grow because of its two pronged debt expansion weighed down by both an over extended military along with the multi-trillion dollar Wall Street bailout, which continues on.  This massive amount of easing will lead to further downward pressure on the dollar. Indeed, the current US inflation has been masked, however asset prices continue to rise against the dollar- as even the housing market has begun to rebound-- with heavily capitalized banks looking for places to park their bloated dollar reserves.

The best place for money continues to remain in hard assets such as gold, silver, oil and agriculture.

Stock

1 GLD 119.26
+1.02 (0.86%)    
2 INX CA$0.45
0.000 (0.00%)    

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