On April 3, 2011, silver was at $35. On April 28, it was at $49. This was the final move up. The silver bulls seemed to be in the saddle.
Silver closed yesterday at $18.55. That is a decline of 62%.
Gold peaked on December 6, 2011, at $1,895. Yesterday, it hit $1,234. That is a decline of 35%.
It is always this way. Silver is far more volatile than gold is. I have been writing about this for many years. On February 8, 2006, I wrote this.
Silver, in contrast, has been completely de-monetized. It is an industrial metal or a jewelry metal. Its price peaked in January, 1980, at $50 an ounce. It then fell for the next 23 years, bottoming at $4.67 in January, 2003. That was a 90% loss of price, but really closer to 94%, because of the fall in the dollar’s value, 1980—2003. In short, silver was an investment catastrophe for over 20 years.
Gold is perceived as a money metal that is used by central banks. It is used by Asians as an inflation hedge. Silver has lost that perceived value. So, silver is more volatile. There was nothing to prevent its fall after 1980.
There is something else to consider. For almost the entire 23 years of its price decline, there were bullish silver brokers who kept talking about the huge gap between low silver production and high silver consumption. Here is my question: If that argument led to losses for 23 years, why should anyone believe the same argument today? There was a negative correlation for most of those 23 years between that argument and the price of silver.
I am reprinting this, because the silver bulls are in their bunkers for now. We hear nothing about the supposed discrepancy between silver supplies (low) and silver demand (high). But there will be another boom in silver, and then the silver bulls will emerge from their bunkers, dust off the 1975 arguments from the late Jerome Smith, substitute some new figures, and once again lure newcomers into the trap.
When the reversal of the precious metals comes, silver’s price will rise faster than gold’s price. Silver is volatile. The silver bulls are far more vocal than gold bulls. They have been for over 40 years. They will come out of their bunkers and proclaim silver as the way to make money. This is correct — in the boom phase. If you buy silver at the bottom and sell at the top, you will make more money than if you buy gold at the bottom and sell at the top. But will you?
Note: silver peaked in 2011 over seven months before gold did. If you invest in silver, your timing had better be very good.
Here is my recommendation: Speculate in silver. Invest in gold.
If you adopt “buy and hold,” put 80% of your precious metals investment in bullion gold coins and 20% in bullion (“junk”) silver coins.