Why I'm Buying Silver at $30
Jeff Clark, BIG GOLD
price has bounced 27% since January 28, a huge advance for a measly 16
trading days. It's already soared past its 2010 high and was selling for less
than $16 this time last year, a double in 12 months. So, is it pricy? Or
should we ignore the run-up and keep buying?
I've read a
few articles that say we should expect silver to drop to the $25 level, and
one pinpointed $22. Others, of course, see bullish tea leaves for the near
term and believe it's headed higher. Of those that assert silver will
decline, most believe it will be temporary, though one writer claims the bull
market in precious metals is over (I think he's a holdout from the
could be right about a near-term decline, but I'm less concerned with what
the price does this month or even the next few months, and more focused on
where it's likely headed over the next few years. Caution: the chart ahead
may cause excitement.
are lots of reasons to be bullish on silver, what everyone really wants to
know is how high the price can go. Here's one hint, based strictly on
historical price performance.
rose an incredible 3,646% from the November 1971 low of $1.32 to its January
21, 1980 high of $49.45 (London PM fix prices). Our current advance, through
February 4, is 596%. At $30, silver would have to climb over five times to
match the last great bull market. If it did, the price would hit $160.89 per
ounce (from its bottom of $4.295 on March 30, 2001).
notice silver has a record of outperforming gold in these two bull markets.
In spite of the price dropping 26.9% in 2008 (while gold gained 5%), the metal has outrun its yellow cousin by 38.6% since
their respective lows in 2001.
2,333% in the 1970s; it's currently up 430%. If it matched the last run, the
price would hit $6,227.26 per ounce, a return of four-and-a-half times the
gold you buy today.
From solely a
historical price perspective, the chart certainly suggests we've got a long
way to go with both metals. The question is if the fundamentals support such
price advances (show me a healthy dollar and no threat of inflation, and
we'll talk), but my point for the moment is that there is an established
precedence for the price of these metals to climb much higher. And just as
important, to keep one's eye on the big picture.
So, yes, I'm
buying silver at $30, in part because I think the potential for enormous
gains is high.
add that I'm not draining my cash account to do so. I think it's important
for the precious metals investor to always be in the game, but given silver's
volatility and the precarious nature of most markets right now, prudence
suggests we keep some powder dry as well.
Let's say one
of the soothsayers noted above is correct and silver temporarily falls to
$25. If you snag it at that level, your endgame return would be 543%, vs. the
436% gain from $30 (excluding premiums and storage costs). That's more than
another 100% gain on your original investment.
But how does
one buy silver not knowing if the price will plummet or soar? For example,
silver could take off from these levels, never to see $30 again, leaving
those of you waiting for a sell-off out of the market. Or it could sink to $25, making investors who went all in now regret they
didn't wait for a better price. Or it could trade sideways until, say, next
fall, leaving both parties uncertain and on the sidelines.
In my opinion,
there's a one-word answer to the question. It solves all dilemmas – it keeps
you in the market, while simultaneously letting you buy at lower prices if
that occurs. It lets you build your position bigger and bigger without the
worry of whether you're getting a good price.
verb is, accumulate. Or in the vernacular made popular in the '80s by
the financial planning community, dollar cost average. In other words, buy a
little now, buy a little next month, etc., until you have a position
sufficient in size to fight off inflation and any other economic woe we're
likely to encounter over the next few years.
So my advice
is, buy, hold, repeat. Because if our silver market
ends up looking anything like that left bar in the chart, you may regret not
having bought at $30, too.
[By the way,
we updated the numbers on the market cap for Pan American Silver from our
article last week… check out how tiny one of the largest silver producers is
compared to other popular stocks here.]
[Where do we buy silver and gold? Get our recommended list of dealers, who have some of the cheapest prices in the industry, along with the silver stocks we think will outperform the metal, with a risk-free trial to BIG GOLD for only $79 per year. To learn how Editor Jeff Clark has boosted his mom’s IRA and his subscribers’ portfolios – and how he can do the same for you – click here.]