Rethinking the Case for Investment in Silver

|
Includes: GLD, SLV
by: Peter Cooper

The July edition of the ArabianMoney subscription newsletter contains a full analysis on the case for investing in silver rather than gold, or at the very least hoarding silver as well as gold. This is a debate that is not going to go away.

Indeed, this is going to be one of those situations where investors look back and say ‘oh that was so obvious, I thought about it, why did I not do it?’.

Opportunity knocks

This writer can recall saying in 2003 that anybody in Dubai who did not buy property would one day regret it like early residents of Hong Kong and Singapore who failed to buy real estate. Admittedly, that call took a big setback in the crash last year but those who bought early in Dubai property still have a 300 per cent gain, even after a 50 per cent house price fall.

Silver will be the same story but the path to greater prices may be just as volatile. Those with strong stomachs have already outperformed gold in the past decade by buying silver, which is up six-fold against gold’s quadrupling. Now, it is true that since the financial crisis gold has done better than silver, but arguably that makes the rebound potential for silver higher.

Silver is still cheaper than it was 30 years ago, unlike any other commodity. It is both a precious metal and an industrial commodity. Supplies are used up in industrial processes so stocks are less than one hundredth the size of gold reserves.

Supply shortage

When investment demand surges, as it is starting to do now, the supply of silver is just not there to meet this demand. Not since the 1970s have we seen global debt levels so high, and for all the talk of austerity, the political reality is that inflation is a less painful way of dealing with debt.

Precious metals will gain as a hedge against inflation, and get their final boost when the bond markets drop as interest rates rise to counter inflation and keep bond investors happy. Don’t miss this opportunity of the decade.

Disclosure: Long gold and silver