Posted On 24 Jan 2012
Silver may be the best investment right now (early 2012) for the average investor.
If it’s not, I don’t know what is.
Why? What’s so good about it? Why consider buying it now?
The fundamental fact about this world is that nothing abides. Flux is relentless. Always be aware of this when investing.
The way to do that is always to think in terms of wealth waves (cycles, booms and busts). Whether you are thinking about investments in precious metals, real estate, businesses, or paper assets such as stock and bonds, always think long-term, which means having the perspective to consider where the wealth wave for an asset class is at the present moment.
The only time to make an investment is in the present moment. It is always impossible to invest yesterday or tomorrow.
Why might precious metals be a good – or even the best – investment in the present moment [January 2012]?
After all, there has been a bull (rising) market in it for a decade! Perhaps that is a bubble that is about to burst. It will end. Why? All bubbles end. If not, eventually one ounce of it would be sufficient to purchase everything in the world!
So the critical question about buying it in the present moment is: “Is the current bull market about to end?”
Some analysts think it is. Harry S. Dent and Rodney Johnson: “Deflation is the only possible scenario in the decade ahead . . . we are a couple of years into the Winter Season. . . deflation is a monster . . .Gold and silver are inflation hedges, not deflation hedges” (The Great Crash Ahead [N.Y.: Free Press, 2011]). They predice that, like most other commodity prices, precious metals will fall in price.
They are correct that precious metals are inflation hedges. However, gold and silver are not like other commodities in one respect: they are real money. As fiat currencies drop, real money soars.
They are also correct that deflation is ahead of us. In fact, it’s already here.
The critical question is whether or not precious metals are deflation (as well as inflation) hedges.
I don’t know. Most analysis seem to think either that they are or that real money is still worth having in your portfolio anyway.
For example, Michael Maloney thinks that they “have a proven track record of performing well in inflation or deflation” (Guide to Investing in Gold & Silver).
Doug Eberhardt: “Silver is money . . . Historical ratios of gold and silver have fluctuated between 12:1 and 16:1” (Buy Gold and Silver Safely). Buying silver is a good idea when the ratio is below 80:1 and “be cautious” or “possibly take the other side” when the ratio goes higher. (Today it’s about 52:1.)
Howard Ruff: “Silver always rises during gold bull markets, usually twice as far and fast as gold, but the supply/demand situation . . . dwarfs all other reasons why silver will soar in price, perhaps much more than twice as much as gold.” (Huff’s Little Book of Big Fortunes in Gold & Silver)
Thomas Herold: The U.S. economy “must go into either default or into hyperinflation . . . Either option is dire . . . Silver metal is the one that has the lowest quantity of reserves to production, as well as the lowest reserve base to production ratios. . . [Its] uses are only projected to escalate. . . silver has more than a whopping 615 percent in price appreciation potential left to it before it reaches its inflation adjusted high again . . . should silver realign to its traditional average of 1:12 purchasing power of gold to silver . . . silver prices would . . . be far higher . . . count on between five and ten more years of the bull market continuing. . .”(Building Wealth with Silver )
So, as usual, expert opinion is divided.
Five years later, everyone realizes that the economic recession that began in 2007 was not just another recession. It’s actually the beginning of a transition to a new world economy. We’ve never been there before – and this is the fundamental reason why expert opinion is divided about precious metals right now. Nobody knows what will happen.
There is agreement, though, that, minimally, we are in for a very difficult decade ahead. (I’ve been discussing some of the reasons for that in these posts, and I intend to continue to do so.)
Like paper assets and real estate, all fiat currencies are falling in relation to real money [precious metals].
That’s the fundamental reason to have them in your portfolio now.
When currencies, paper assets, and real estate re-value themselves against real money, that will be the time to transfer the wealth you have in precious metals to other assets.
Think in terms of value rather than price. When you do that, as Michael Maloney likes to say, precious metals are cheaper than dirt. “Whether you like it or not, the empire of the United States of America is now in decline . . . There is no possible scenario in which . . . [precious metals] do not rise” in value.
Is the U.S. empire in decline? Yes. The beginnings of the decline have been obvious for years. However, that does not mean that it won’t continue to be the most powerful and important nation in the world for quite a few years yet.
Will precious metals rise in value? Nobody knows. For my part, I predict that they will. I’m in!
Even if you agree, however, please don’t become attached to them. When you decide that their bubble is near its top, sell them.
Either way, my most important suggestion is to continue to develop your most precious asset, which is your mind. Keep reading blogs like this as well as books, keep thinking regularly, and every day practice letting go of all thoughts.
The amount of time we waste on trivialities is astounding. If you need to, please break out of your beer-and-sports induced coma or addiction to soap operas and shopping.
Step back. Notice your attachments. Starting with the most important one, begin breaking them all one at a time.
I’ve known bright people who were attached to television news! That news is mostly mass entertainment. “If it bleeds, it leads.” Regularly focusing attention on short-term catastrophes and crimes robs you of paying attention to what is valuable.
Investing in precious metals or anything else is a game. Since all such activities can become addictive, I believe it’s important to remind yourself daily that the purpose of the investing game is to get beyond the need to play it.
What do you want freedom for? What do you want freedom from?
(My answers: Freedom from Becoming. To live well, which is living a balanced life between Becoming and Being, and to help others do the same.)
Whatever your answers to those important questions, precious metals may be a means to enable you to get there.