When I last looked silver was trading at $33.72 per troy ounce NY Spot and gold was trading at $1,726.50 NY Spot. James Turk, a renowned precious metals guru, was estimating that gold’s true value would be close to $11,000 per ounce on his “Gold Money Index” (see:http://www.kitco.com/ind/GoldReport/feb022012.html). He arrives at this figure by taking Central Bank Foreign Exchange Reserves and dividing it by Central Bank Gold Reserves to arrive at a Fair Value for gold.
In that article he suggests that a twenty year old should have 20% of his net worth in precious metals. He further suggests that a person approaching sixty years old should have 60% of his net worth in precious metals. That caught my attention.
I was thinking that in times of inflation its nice to have farm land. Probably most investors are heavy into stock, bonds and real estate. The problem with real estate, stocks and bonds is that the state can easily put its hands on those assets. For instance real estate is hard to hide, it’s not portable, it’s not easily divisible, and it’s relatively illiquid. Gold and silver can be hidden, transported, and easily liquidated. It’s also very divisible. Those are qualities that make it a great medium of exchange, or money. That, and the fact that it retains value.
You can imagine what an $11,000 per ounce gold price would mean for the price of silver, especially if we returned to a 15:1 natural silver to gold ratio. At that ratio and gold price, silver would be $733 per ounce. As the currencies of the developed world self destruct due to the socialist policies currently in vogue, gold and silver will once again assert themselves as money and as a reliable store of value. When currencies die, which seems to be a global phenomenon these days, gold and silver are resurrected as honest money.
Don’t ride the dying horse. People are on that currency horse, kicking it, coaxing it, and hoping it will keep running. Yes, the dollar is a dying horse. It’ll still trade, but its day of reckoning is coming. It’s value is rapidly dying.
If $733 per ounce silver is a possibility wouldn’t you like to own a little of it today at $33.72 rather than the falling dollars you would use to buy it? Today for about $33,720 you can acquire 1,000 ounces of silver. Even if it took a year or two to acquire 1,000 ounces, wouldn’t it be worth the risk and the effort? Silver will never go to zero value in dollars. Paper money carries that risk. The hundred year trend of dollar destruction is still in place. So, placing a bet that this trend will continue would seem to be a very safe bet. All the fundamental drivers of that destruction are in place and on steroids. If your 1,000 ounces of silver appreciates against the dollar to a $733 per ounce value a few years from now you will have the equivalent in silver of $733,000 dollars. That ought to liquidate some debt and still buy a meal or two. Of course, a lot of things have to happen before we’ll see that kind of valuation, but what if they do happen? Many of them already are happening.
Alf Feld also had some very interesting Elliot Wave observations about silver today. See his article here: http://www.kitco.com/ind/Field/feb022012.html . If you believe in the Elliot Wave theory that he supports, we’ll likely see a price of $158 per ounce in the near future for silver (perhaps on its way to $733 per ounce?).
The pies-ta resistance was Hubert Moolman’s article entitled Silver and the Shift to Measuring Wealth In Ounces Not In Dollars(see: http://www.kitco.com/ind/Moolman/feb022012.html). He remarks: “The shift from measuring wealth in terms of paper claims (dollars) to gold ounces, and the limited means to increase gold ounces, will change the business and investment world significantly, and will create a massive rush into those opportunities that increase gold ounces. The shift is already evident, with some countries possibly trading oil for gold.
Currently, in my opinion, silver bullion and gold miners present some of the best opportunities to increase the amount of real wealth as measured in gold ounces.
Both, silver bullion and gold miners are still trading lower or at its 1980 high, and also at relatively historic lows against gold. Silver offers the best opportunity, at the moment, since it offers less risk than shares in gold miners. However, as the gold/silver ratio falls (which is expected), gold miners will become more and more attractive.”
He is right on the MONEY. Although currently only the central banks, 6% of Europeans and 3% of Americans have started to move from currencies to precious metals, the momentum is building. Libya and Iran have both talked about accepting gold for oil. China is preparing to enter into that trade with Iran. Surely in India and China the desire to own precious metals is so embedded in the cultures that it’s not hard to see masses of people make that choice. China already encourages its people to buy precious metals. India doesn’t have to encourage its populace. Governments can also put up road blocks. For instance, India recently raised the import duties on both gold and silver. But, as the citizens of each country begin to wake up to the devastating effects of monetary inflation, they will flee to gold and silver as safe havens. Of the two metals, silver is the more undervalued according to most analysts. That’s where the big upside is.
Investing in stocks and precious metals is risky and could result in losing money. I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence. I am not an investment adviser. Precious metals is not for everyone. You should do your own due diligence when making investment decisions of any kind. You should consult your own financial advisers before making any investment decision. I make no guarantees that by following any advice or suggestion I might make that you will realize any return. Beware, all commodity markets and other markets carry risk of loss.