Investing in Silver
Is silver a good investment? Are you kidding me?
Now is not the time to invest in silver because it’s in an even bigger bubble than gold is.
(Read this: Is gold in a bubble?)
No one really knows what the future holds but it seems to me that investing in the silver bubble would be a massive misstep. It’s almost admitting that the world is coming to an end. And if the world is coming to an end then silver won’t help you much anyway. It’s a hard asset like gold and can’t be printed. When all the people start panicking like little babies, the prices of both gold and silver skyrocket, for a while. Don’t forget, these supposed “safe haven investments” have been known to crash hard and it can take decades to get your money back.
Take a look at this silver chart from Wikipedia:
| Year | Silver price (yearly cum. avg.[8]) US$/ozt |
Gold price (yearly cum. avg.[9]) US$/ozt |
Gold/silver ratio |
|---|---|---|---|
| 1840 | 1.29 | 20 | 15.5 |
| 1900 | 0.64 | 20 | 31.9 |
| 1920 | 0.65 | 20 | 31.6 |
| 1940 | 0.34 | 33 | 97.3 |
| 1960 | 0.91 | 35 | 38.6 |
| 1970 | 1.63 | 35 | 22.0 |
| 1980 | 16.39 | 612 | 37.4 |
| 1990 | 4.06 | 383 | 94.3 |
| 2000 | 4.95 | 279 | 56.4 |
| 2005 | 7.31 | 444 | 60.8 |
| 2009 | 14.67 | 972 | 66.3 |
| 2010 | 20.19 | 1225 | 60.7 |
| 2011 (cum. thru 19 Aug) | 41.20 | 1850 | 44.5 |
The thing I’m most interested in is the far right column of the ratio of gold to silver. We all know that gold has shot up and gets a lot more media coverage than silver, but silver has actually gone up more than gold on a percentage basis. Gold is always more valuable per ounce than silver but the gap isn’t always the same. Silver has gone crazy. From under 15 bucks in 2009 to over 40 bucks now. As with all bubbles, they have the capacity to keep growing and the bubble might grow bigger for a while depending on a variety of mostly meaningless reports coming out of the US.
You need to be careful when you are investing in commodities that are pumped up in price from speculation rather than from real demand. This is exactly what is going on in the silver market. It’s happening with gold too but to an even larger extent in the silver market. I was surprised myself when I decided to do some research on this metal and that’s why I’m writing about it. I would highly advise anyone to stay far away from silver no matter what ridiculous “investment advice” you come across.
Remember, buying high and watching an investment plummet is neither good advice nor fun to experience.
I totally agree with you.
The rapid rise in silver and gold prices over the past few years make no sense and people are “sheepishly” following the crowd and making gold and silver massive bubbles. I watched a video interview the other day with Soros talking about why Gold is “the ultimate bubble” and it was a similar line of reasoning. As far as I know he’s the world’s best at knowing when something is in a bubble. The million dollar question is when exactly will it burst. Unfortunately no one really knows that one.
Beg to disagree. Silver is not a bubble and I’ve done my analysis. Silver is a rare commodity and the word for money in many languages is actually silver. It is both a monetary and industrial metal. There is very little silver above ground. The value of all the silver produced in the world annually is ~ = value of 1 week of US government deficit. Of course, 10 yr treasuries at 2% yield are not a bubble but silver is … how stupid is that. Well, keep on buying 10 yr Treasuries (or even better BAC shares) and suffer the negative real yield as inflation is 3.6%. Silver has huge potential and the smart money is in silver. Ask Jim Rogers and others who have made money rather than just talk. The best investment is silver is silver coins but only the well know Silver Eagles and other ones like that.
Thanks for the comment rt. I appreciate the back and forth and no one knows for sure where the price will go long term. There are so many variables. I guess we’ll have to agree to disagree though. If the fact that “silver is the word for money in many languages” is even a part of your research than I guess we look at bubbles and pricing very differently.
Hey guys, I might be a black sheep but I think the best investment for now is not in gold, silver, treasuries note, stock. It is the investment in food supply. I’ve done some research and people in all over the world now is in crisis of food supply to some extent. That makes the food price double every 2.5 years now in developed country. The situation is even worse in developing country where the food price is now doubling every year. If you think this world is coming to an end, then people does not need anything else but food. If you think this world is not coming to an end and leaders on the world will work a way out of crisis somehow, then food is still a problem these and those day.
Hi Andrew – interesting post and you are amongst the minority saying that Silver is an ‘bubble’. I guess it all depends on what happens with the world’s monetary markets – if Greece defaults as is looking likely – then the Eurozone will become hugely volatile. If QE3 takes place watch for Silver and Gold to jump again.
Many Silver bugs talk about a paradigm shift when looking at the greenback. If the US goes into a hyperinflation period look out for people just focusing on gold and silver.
Based on you chart the ratio should be approximately a 37.4 ratio (currently 44)
Thoughts?
Hi Robert,
I am always in the camp that says “anythings possible” but I don’t see a period of hyperinflation. History does repeat itself sometimes, but I don’t think inflation will be as bad as people think. The US is actually quite cheap right now for housing and many other things. Electronics are always getting cheaper. The government admittedly makes some ridiculous moves but they know how bad hyperinflation is for the retired people and the savers. I believe they will figure something out. To me, what happens with Greece will be less important than most people are anticipating. It’s a small country and I can’t see a cascade of European collapses. China has the money to bail them out and something will be done to protect their exports and save the global economy. This mess is solvable, it’s just that it’s taking a long time to get the leaders to agree on anything. I think one thing they all agree with is the fact that it’s in no ones interest for the global economy to shut down. Signs of stability in the global marketplace will send gold and silver down to where they belong.
Seems to me that a rumour mill has started from the bears who are short on silver and gold. The analysis you offer on price is disconnected from inflation. Furthermore, if you think the price of silver should somehow oscillate according to its ratio with gold irrespective of global demand for the metal, its industrial uses, in addition to investment demand, then I’m not sure your analysis is any better than RT’s.
Supply has yet to really ramp up enough to meet the growing rate of investment demand, so we should have a bullish year ahead (or more). Keep in mind that although oil may drop off for a few years, or even a decade, its inevitable rise while make it more expensive to mine for silver and gold in the long term and again support the price.
Other worthwhile factors to consider:
China’s decision to push for a gold backed currency/trade arrangement (if silver’s price is related to gold)
States in the US that have already monetized silver and gold
The fundamental fact that we have a deficit that will grow as boomers retire and a debt bubble that by far surpasses your perception of a bubble in an asset class that is owned by a tiny fraction of investors
*Silver may become a bubble, but we aren’t there yet. Cool your jets bears, or you might get burned.
Very good article with some blunt advise. It was written in August 2011 when price of the silver was well above $40 mark and today on 9th July 2012 its price has dropped to $26. You were absolutely right. Now I am an optimistic investor and my optimism may be hijacked by media propaganda or ridiculous investment advice but only for temporarily. There must be facts to support our optimism and instinct. I think silver is coming down and it will go under $20 mark. That would be right time to buy because that would be a very calculated risk. Watching an investment plummet is neither good advice nor fun to experience. What do you guys think? What would be the rock bottom you think?
how can there be a top in any commoditiy when less than per cent of the investing are involved.please explain that to me.
Do yourself a big favor back up the truck and buy as much silver as you can if you dont you could be one of the most depressed individual on the planet in a year form now
Regards
Sol Rosenberg
i believe that all the invesments people try to so hard to accomplish they get wrapped up and doing something inevitiable yeah u have aenough faith u can do ne thing but personally y not enjoy life n be happy n realize money isnt everything