In September 2010 I published an article in another venue entitled “Silver Investing—Is It Too Late at $20.” The conclusion was, no. A mere month later, I published another article with a similar title when the price of silver closed just shy of $25 an ounce. The article closed with the same conclusion; it’s not too late. In late January of 2011, when the price of silver had pulled back about 11%, I wrote in that venue that it was a great buying opportunity. I took advantage of the opportunity. I hope you did too.
I stopped writing Silver Investing articles for the other venue that include price and specifics about the lawsuits claiming manipulation of the silver market because I had trouble getting them published. The site management of that venue does not like specific price and defendant information, but instead prefer general information that is still “ . . . just as relevant ten years from now.”
So in this venue, my own blog, I ask if it’s too late to get into silver investing with the price of silver at $41 per troy ounce. The answer is a resounding NO.
You can see from the chart below that $20 and $25 were great times to get in. The pullback in January 2011 where price dropped back below $27 was a great time to get in. $35 was a great time to get in. Looking back two years from now, it will obvious that $41 is a great time to get in.
Will the price of silver pull back from its current level? I do not know. However, those that awaited a pullback when silver broke through the $25 mark haven’t gotten that opportunity yet. The price has risen 60% in the six months since it surpassed $25.
Why is it not too late at $41? Several reasons, but in general, the really bad economic times haven’t yet started. The U.S. government claims inflation in the U.S. is about 2%. A lot of people still believe that. It’s really about 6% according to the NIA (National Inflation Association). The $14 trillion debt that the U.S. has amassed, and the fact that the Federal Reserve has had to purchase about 70% of the Treasuries sold at recent auctions to keep the yields from shooting up, will make the coming economic depression worse than it would have otherwise been.
Yes, I said depression. What will be called a double dip recession when things turn down again, will really be just the second leg down in the early stages of a multi-year economic depression.
When the official U.S. inflation level gets into the high single digits, say around 8%, the U.S. equity markets will have a tough time. Many will know by then that U.S. treasuries are no longer safe. Those who do will turn to precious metals; gold and silver. And it will not take much of the trillions of dollars currently invested in the stock and bond markets to move the relatively tiny gold and silver markets a long way.
From the chart above you can see that silver closed at $40.93 on 4/8/11. Gold closed at $1,475. The gold to silver price ratio stands at 36:1. That ratio was 68 to one a year and a half ago. I believe silver is a much better investment than gold for two primary reasons;
- Over half of the silver mined each year is consumed in industrial applications—there are real, practical uses for silver. When investors start hoarding silver, supply for industrial uses will be tight—and price will soar.
- The gold to silver price ratio fluctuated between 15:1 and 20:1 for about 200 years when both were used as money. The average ratio was about 17:1, the same ratio that geologists say silver and gold exist in the earth’s crust. That is, there is 17 times more silver than gold.
For a ratio of 17:1, silver would need to be $86.75 per ounce today. When the price of gold hits $1,700 an ounce, a 17:1 ration would put the price of silver at $100 an ounce. And when it hits $2,500, $147 an ounce.
Personally, I think the ratio will go lower than 17:1. So when is it too late to invest in silver? I say, when the gold to silver ratio gets to 12:1.