is silver a bargain at $40 ?

Back in 1980, Silver was $50 an ounce and Gold was $800 an ounce. A 16 to 1 ratio.

Today, Silver is trading at a 20% discount to it's 1980 price at $40; while gold has more than doubled to over $1800. A 45 to 1 ratio.

Am I missing something ... or is Silver a HUGE BUY here?

Let's not forget the period from Sept 1 to Nov 30 is nearly always HUGELY BULLISH for silver and gold. Last year silver doubled in that period. We are only 12 days away from Sept 1st. I think it's time to load up your truck with silver (and why not buy some gold too while you are at it!)

 

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I understand your reasoning Winged, but I would be extremely careful. Silver was market manipulated to $50, while gold was not. Therefor the comparison can be misleading. I always considered about $30 the price silver really got to absent the Hunt's, because that is the price where it setted for a bit. Still, even using that number would indicate silver underpriced or gold overpriced if you wanted to put your faith in their ratio meaning something. I personally don't, but others do.

Personally, I think gold is a little overplayed right now, since no other investment seems decent. I think gold will pull back as soon as some investment, (any investment), seems worthwhile.

 

However, remember gold ran up from $600 to $1800 while the stock market was booming (from March 2009 to a few weeks ago). So I am not sure that people were buying gold because nothing else seemed worthwhile.

I am curious, where do you think is the best place for cash today?

From what I can see: Bank accounts and CDs pay nothing. Stocks appear to be going down and the manipulation and volatility induced by the high frequency traders is just crazy. If you just hold dollars, you lose from devaluation.

Do you think Bernanke will announce some form of QE3 at his Jackson Hole, Wyoming speech next week --- that is what sparked the near doubling of gold and silver in the past year.

 

My own unprofessional opinion... *heh*

The gold:silver ratio is bunk.

There are 2 reasons for this:

1) The first argument for using the GSR as a means of predicting/analyzing gold and/or silver prices is that the ratio has "historically" been within a certain range. The argument suggests that since the GSR is historically X:Y, it is safe to presume that it "naturally" wants to be back there, and that the market will try to correct to that point.

The presumption here, of course, is that the market for these metals has remained stable and unchanged...in other words, that things are as they always have been. There are 2 flaws with this.

First, clearly this isn't so. Gold and silver have performed remarkably differently the past 8-10 years than they did in the 100 years prior to that. So...if one considers an 8-10 year run to be indicative of market movement, then "things are different"....and relying on old ratios and behaviour is foolish.

Of course..perhaps you believe that an 8-10 year trend is NOT significant. Perhaps you are a longer term investor who believes that 8 years out of 50 or 100 is not significant. If that's the case, then why are you investing in gold/silver at all, or concerned with their ratio? Historically, except for that recent period of time, they are POOR investments.

In other words...the only situation that makes the gold:silver ratio worth studying is the one that makes it meaningless.

2) Let us presume, however, for a moment that the GSR is worth studying for whatever reason. Ok, fine. The argument is STILL predicated on the situation remaining relatively static.

That INCLUDES demand for both the metals.

This isn't to say that demand for silver must be what it was 10, 25, or 50 years ago...but rather the RATIO of demand for silver : demand for gold must have remained the same.

This clearly isn't the case. Photography, a historically high demand for silver, is a fraction of what it was 25 years ago, as film has become (sadly, in the minds of some) a relic of a bygone age. By the same token, every day, a new use for silver is found in medicine, and electronics demand has skyrocketed since 1975.

In a related way, we must also presume that the ability to mine/produce/recover both metals has remained relatively static, as a ratio.

Put another way, the price of both metals is some function of supply and demand. To presume, then, that the PRICE of two metals must maintain a consistent ratio presumes that both the supply AND demand of both has maintained a consistent ratio.

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Finally, if ALL of that is bunk, and there really is some magical ratio gold and silver seek to achieve...

How do we know that the signal isn't a HUGE SELL for gold?

 

More unprofessional opinions below. (Mostly just cuz I love talking this stuff)

Same place it's always been...diversified between a pile of cash, a pile of precious metals, a pile of collectibles, and growth stock mutual funds with 20+ year track records of positive returns and stable management.

You're correct as far as you go...but the question is as it's ALWAYS been :

Do you wish to speculate over the short term, or invest over a long term?

The former can certainly make you a pile of money in a hurry...it can also lose you a pile in a hurry. The latter is much less likely to make you rich quickly, but practiced well, much less risky.

PERSONALLY (and this is just me) my investment decisions are guided by two principles:

1) If you want to be wealthy, do what wealthy people do. Warren Buffet, Bill Gates, Dave Ramsey....you may or may not like what these guys say, sell, produce, whatever...but the fact remains, they ARE very wealthy, ALL of them started with nothing, and they have certain things in common. One of them is that 10 years is "short term" for them.

2) I've raid the tortoise and the hare many many many times. And that bleeping turtle keeps winning.

"Some form"? Absolutely. I don't think he can do anything BUT. Will it be the same as it has been? Who knows? But at this point, printing more money is the ONLY weapon the Fed has left, imo.

 

I would view the market from March 2009 on as a reversion to the mean of an overcorrection. Remember that the market dropped like 40% before that. Markets always overreact in both directions. Therefor I do not think that had much to do with gold.

Right now, I don't really see a good place for cash, which is why I think a lot of money goes into commodities like gold. Almost every other investment type has problems or no returns. My opinion if markets stay like this, or get worse gold will continue to rise. If a stock market, a currency market, or some other investment vehicle starts to have a good return I think you will start seeing gold ease back down.

Just my opinion of course. I have no idea what the Fed will due, but it would not surprise me. The Fed has seemed inclined to mortgage their future already, what is a little more? The Fed has turned from a respected limiting institution into a political slush fund in the last few years.

 

well if Bernanke announces QE3 next week ... silver and gold are going to take off

 

If they truly take off, I will be selling into strength and buying good value stocks that in my eyes have been beaten down well below their worth. Bad news cannot continue forever, and when the market gets a few positive surprises I think it will bounce back.

 

When adjusted for inflation that $50 high in 1980 would be something like $128/oz in 2011 dollars. While it is true that that $50 high was due to manipulation, the story today is much different. The manipulation in the market today is on the short side, silver is more rare, financial problems are global, and investment is global. I have already spent as much of my cash cushion as I am comfortable with, but I am still buying small amounts here and there. If I had more to spare I would be buying rolls even at today's prices because I think $40 silver will be viewed as cheap in the not so distant future.

I also think QE3 is inevitable to avoid systemic collapse due to how anemic growth numbers are in the wake of QE2. They just need an excuse to do it so people will go along, and we may be seeing that with the markets lately.

 

I like silver. There are very few things you can buy for less money than it took 32 years ago. And I also think it will continue to move higher -- it's a bull market until it ain't. But I have to conclude that it is not a "bargain." That would require it to be undervalued relative to a measure of intrinsic value, and the only intrinsic value measure for silver that I can think of is total cost of production. That is probably somewhere in the $20 to $25 range as best as I can estimate.

 

Just curious, how much do you think Cloud systemic $40 silver will have on:

1. Industrial demand
2. Spur increased opening of either new mines or reopening old ones.

I know you say its not easy to find, but we are coming off of 20 years of low prices, so no one was really looking for them either. I would think $40 silver could produce a lot more silver out of the ground.

Chris

 

Yes, this thinking assumes there is some inherent relationship between silver & gold. There isn't.

 

Investing in PM is at the moment a safer harbor than most, although I must comment that the USD has stayed fairly stable, even with the soaring gold price and the crashing banks here and Foreign, and since there is a ( IMO)high amount of "fear factor" in the POG, maybe $200- $300, which may drop out much faster than "investors" realize, I would stay in USD cash at the moment.

I am not convinced that many on the forum who call themselves PM investors are prepared to sell their physical gold when the reversal ( whenever) occurs. My remaining physical gold is collector style or small units ( 1/10- 1/4 ounce) which I use for non investment purposes, or I would be selling portions at this level. If gold drops $100 in a day, I don't think your bullion supplier will answer the phone.

As to silver, Cloud and I are in agreement that the intrinsic value is around $25, and I personally do not see the industrial demands of silver increasing significantly in the coming years. The relatively high price of silver over the past year, has stimulated a high level of scientific investigation into substitutes for silver and platinum in industrial needs.

Jim
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You're great thinker, Wingedliberty.

I expect the gap to close somewhat, but I don't believe it will come close to the 13-1 it was in the 80's. Trouble is, many start viewing precious metals like stocks, when they are a completely different beast.

 

:too-funny:

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In terms of commodities, I can't think of one that's cheaper. But maybe someone else can.

 

Why didn't silver take off when he announced QE1 & QE2?

 

Yes, and one of those "common traits" (despite their altruistic musings) is a very close association with Politics...and, more specifically, Politicians. :goof:

 

This is a 5% drop. To put this in perspective, the S&P 500 is down 4.5% today and the Nasdaq is down close to 7%. Yet I can still buy stock at anytime.

 

I was in the largest coin store in Des Moines 2 days after silver dropped in 1980. The phone would ring and ring, and the two dealers ignored it. There is a downside to physical bullion, that is ability to sell. In a falling market the dealers do not want to own it any more than you do, so they either discount more heavliy from spot or simply say no. That is the advantage of securities, there are market makers who do provide that liquidity to the market.

This failure of the physical market, along with the high costs involved, is precisely why the paper PM market was created to begin with. Jim is completely right that dealers will not be willing to buy your gold until they feel the freefall is over, (if it starts to begin with, whihc I am not predicting).

Chris