Silver and gold remain much better investments than US equities
Posted on 11 May 2011 with 4 comments from readers
If you had put your money into Intel a decade ago you would have bought into one of the most solid and sustainable tech stocks, and the company has delivered on that expectation. But as a stock market investor your returns from Intel stock would be less than nothing allowing for inflation.
Lost decade
That’s true for US equities overall in the past lost decade. Of course, it has been a different story for investors in precious metals. If you take just the past five years, you doubled your money in gold and trebled it in silver, albeit silver has had some heart-stopping ups and downs, last week was just the latest.
Precious metals have gained some respect from investors over the past decade for a six-fold rise for gold and 15-fold rise for silver. But it is remarkable how many people still buy equities for retirement when the past performance has been so lousy, and the risk is still mainly to the downside, while gold and silver still have plenty of room to move up.
$320 silver
All the reasons ArabianMoney has forecast a $5,000 target for gold and $320 an ounce target for silver still apply (click here). But nobody ever said it would be a straight line.
Last week was a very healthy correction for silver. That sounds like nonsense but it is the truth. For in order to reach our $320 target the silver market requires an orderly rise, the spike last week would have burned out before $100 an ounce.
Silver can now consolidate and then take out the $50 all-time high again in the autumn and move mysteriously higher. Actually there is no mystery about it, this is just investors moving from paper currency into metallic currency to avoid devaluation, and as they do so the ratio between gold and silver will also fall towards its long-term average of 12-16.
If you have the stomach for the roller-coaster ride then silver is the better investment. If you prefer to ride in a Rolls-Royce then buy gold. But ‘Mr Gold’ Jim Sinclair does not think we have seen a top in silver (click here).
Dead-cat bounce
Is the price today a dead-cat bounce from the drop last week? That is likely but prices may well not go much lower than that over the summer. The move to the downside will most probably follow in other asset classes.
Given that secular bull markets generally last 15-20 years for commodities on historic precedent, then the best is yet to come. And likewise the secular bear market for stocks that began with the dot-com crash in 2000 has years to run, and Intel will continue to lag behind precious metals for investors.
4 Comments posted by readers:
I have read many articles and blogs about Silver. This is probably one of the best I have read and summarizes the last drop very nicely. This is a must read article for those who are into Silver.
http://seekingalpha.com/article/268691-anatomy-of-silver-manipulation-how-low-can-it-go
If nothing else, buying gold is like buying fiat money insurance.
I see a correction when QE ends, but I doubt that it will be a big one, or last more than a few weeks. If the market really tanks, get ready for QE 3, because Bernanke has said that one of his goals with QE was to pump up the stock market. QE 3 should send gold to $1,800 by the middle of 2012.
Money printing will be needed whenever the peak oil economic contraction starts (2015 ish?) in order to prevent the onset of a deflationary spiral. After the peak is recognized, gold will really take off, as the Fed pumps out money like crazy in a vain attempt to reverse the slowdown, which will be impossible. Oil contains too much energy. Decrease that supply and we’re screwed.
I hope I’m wrong and everyone is driving around in their new all-electric Ford Focus with their claimed 100 mile range. Maybe the super capacitor will be improved to go 200 miles. Ford claims that their Focus will handle 96% of all commuter trips. Is there enough lithium and will those that have it, Bolivia and China, sell it? Chile will.
Andy, comparing the article you have linked for us with this article by the Editor of ArabianMoney, I know which I prefer. Your linked article is very long, full of jargon that I cannot fully grasp and its conclusions are not clearly written.
With regard to this article here in ArabianMoney, I feel it justifies my earlier posts that investing 33% or less in gold and silver is not sensible particularly when it is now possible to buy and sell bullion over the internet without having to take personal delivery of it.
It seems that the risk of having invested in Intel a decade ago was great and should now be appreciated as such. The risk was to gain nothing over the decade when inflation is taken into account.
To gain nothing over a decade is a loss, surely! And since it is true for Intel, it’s true for US stocks overall, as Ed. tells us.
Sure, bullion might go into a long phase where it doesn’t do as well as shares but then it is not difficult to find out when that phase is in existence. Sell then and buy later, but to invest more in Intel-like shares over ten years, outside such a phase, rather than in s and g, does not seem to me to be prudent investment.
Raj Rajaratnam found GUILTY on ALL 14 counts of conspiracy and securities fraud. The Government tapes did him in. Federal sentencing guidelines mean he will probably serve at least 18 years in a Federal prison. (He is lucky there, because most State prisons in the USA are real hell holes.) The Government has said that he can flee the country and easily forfeit the $20,000,000 he has put up in bail. The judge has ordered that he wear an electronic bracelet. If he can somehow get to Sri Lanka, he is home free.
It all makes me wonder how much of his $2 billion did he earn honestly? I wonder if he could have paid more Federal Income tax to help cut the deficit. He must have been one of the fellows that Bill Gross was writing about in his Pimco ‘Investment Outlook’ for February, 2011 at http://www.pimco.com entitled ‘Devil’s Bargain.’ It is a great piece of writing, as is his May article. I loved the sleeping destroyer captain story. It is a classic.
And silver will be back near $45 in a few weeks.