The Big Silver Picture
You hold your investments for your retirement through your IRA or 401k for many years. When investing for the long term, you want to keep looking at the big picture and adhering to some core principles that will help your portfolio thrive.
- You need to protect yourself from market losses, bubbles, and declining purchasing power. You simply don’t want to waste a decade to regain losses and find yourself holding the same wealth but with diminished purchasing power. Let’s face it: our dollar’s purchasing power has been going down for over 100 years as a result of the debasement of our currency (money printing), and it will continue doing so at an accelerated pace now that the Fed has announced it will use QE infinitely, which means they’ll print as much money as they feel is needed.
- You want to invest in inexpensive assets—you always want to buy when it’s low or close to low and sell when it’s high or close to high.
- You want to consider global financial developments that will help you identify new opportunities. Here are the ones that pertain to precious metals:
- Debt will increase as slower global economic growth is accompanied by unprecedented levels of monetary and fiscal stimuli.
- New super-bullish triggers for gold and silver have emerged faster than anticipated—bigger government, unlimited money printing, negative interest rates, infinite deficits, Fed buying junk bonds.
- Prices for hard assets and for your groceries will rise as the purchasing power of our dollar continues to diminish.
Your safe choices at uncertain times
Gold and silver are two of the safest choices you can get in a world that relies even more heavily on debt and money printing since they aren’t associated with debt. A bar of gold or silver is debt-free, so its value actually goes up when central bankers print money, which I wrote about a few weeks ago here. That is why the current trend is super-bullish for gold and silver. In fact, Bank of America just announced their forecast for gold to hit $3,000 an ounce in 18 months because, they say, “the Fed cannot print gold.”
In this article, we’re going to focus on silver because it’s in a position that can only be described as a historic opportunity. Here’s why.
Silver is dirt-cheap
When you invest for the long term, you want to choose historically cheap assets that have a history of appreciating significantly. The long-term investor has the time (usually a few years) to wait for the cheap assets to appreciate, and when they do, they skyrocket. An example: in 2011, silver increased 5-fold in just one year.
There are two ways you can see why silver is historically cheap today (hence “dirt cheap”).
1. Silver is cheap compared to its all-time high
Silver’s contractual spot price is currently trading at about $15 an ounce, which is 30% of its all-time high achieved late 2011 (about $47 an ounce). So, if the price of silver doubles, it will still be 36% below its high. If silver triples, it will still be 4% below its high. Get the picture? There is so much room for growth in silver to just get to where it was. Compare silver to gold, and you’ll see that when gold doubles, like Bank of America, is estimating it will soon, it will be more than 50% higher than its all-time high.
2. The gold-to-silver ratio shows silver is dirt-cheap
We can also see how cheap silver is by comparing the ratio of the cost of silver to the cost of gold. This is called the gold-to-silver ratio, which savvy precious metals investors and traders look at constantly to see where the pendulum will swing next. At its very basic, the gold-to-silver ratio is the number of ounces of silver it takes to purchase one ounce of gold. This month, the ratio made history as it broke the 120:1 ratio, which means that day it took 120 ounces of silver to buy one ounce of gold.
To determine the ratio, you can simply calculate it on your own:
- gold-to-silver ratio = price of gold / by price of silver
Here is an example, using today’s market price:
- $1,720 (gold) / $15.20 (silver) = 113.15 (ratio)
In the past century, the gold-to-silver ratio has fluctuated wildly and averaged around 50. This means that to reach the average—which will happen—silver will need to be priced at $34.40, and any investor going into silver today will more than double their investment.
The gold-to-silver ratio over 100 years
As this chart shows, the gold-to-silver ratio is at its most extreme point in history, and it will correct itself substantially, as it has done for over 100 years. When that happens, silver holders will make multiples on their investment.
Remember the cheap investment you didn’t get years ago? Was it getting gold at $280 an ounce in the early 2000s? Or was it the home that in early 2002 cost 40% of what it does today? Or the stock tip for investing in Google or Amazon when they just did their IPO? We all have stories of what we should have or could have done. Well, if you don’t add silver to your portfolio, I can confidently say that in a few short years, you will be able to add the story of how you could have bought silver at $15 an ounce to your tales of “should-haves, could-haves.”
The choice is yours. We can help you with the process of rolling over silver to your 401k once you decide and make it easy for you, but you do need to decide.
Be well and safe.