You can invest money in silver at over $40 an ounce in 2011 or invest in gold at around $1,500, but before you invest, I have a story for you. Timing is everything when investing money in these precious metals, so I’ll give you some background first.
Over the years, silver (the white metal) has been seen as the poor man’s gold (the yellow metal). When gold prices soar like an eagle, silver tends to do the same, sooner or later. Old folks like me like to keep a time-honored rule in mind when deciding where to invest money in the silver vs. silver game. gold sand. Yellow material sells for about 50 times the price of white material in the long run, our rule says. If silver is selling for $40, gold should be selling for $2,000. Given that the latter retails for only around $1500, it’s a steal, relatively speaking. The white thing is expensive in 2011.
The tables have turned drastically in the last two years. Silver prices stayed in the $5 range for years and were at $9 in 2009. It was a great place to invest money for the next two years when it was cheaper compared to gold. Then the white metal soared 35% in the first few months of 2011, when gold was only up 4%. That turned the tables. No precious metal is cheap by historical standards, and what goes up like a rocket can go down like a rock. That was the case when silver hit $50 in January 1980, under unusual circumstances.
In an attempt to corner the market, the wealthy Hunt brothers shipped the white stock from $11 in September 1979 to $50 in a few months by buying in bulk. When they couldn’t stand the price anymore, it collapsed to less than $11 two months later. These were extreme circumstances, but we have seen two dramatic stock market crashes since 2000. All markets are subject to extremes and precious metals are no exception.
The average person can invest money in silver or invest in gold in 2011 simply by opening a brokerage account with a major discount broker. If you want to invest, I suggest the stock symbol SLV or GLD, which are exchange traded funds that track the price of their respective precious metal. This is the best way to invest money in these commodities for one main reason. If the tide turns quickly, you can sell and be out in seconds during business hours Monday through Friday.
I have long recommended that average investors invest money in precious metals as a way to add diversification and balance to their total investment portfolio. At 2011 prices, I would reduce my holdings, not increase my investment. If you missed the pot, don’t worry about silver vs. gold in 2011. Wait until both have dropped significantly (the 50X rule applies) and then invest money in the cheaper of the two.