In September 2010 I published an article titled "Silver Investing-Is It Too Late at $20." My conclusion was, no. A mere month later, I published another article with a similar title and the same conclusion when the price of silver closed above $24 an ounce. In late January of 2011, when the price of silver had pulled back about 11%, I wrote that this was a great buying opportunity. Other silver analysts were warning of an imminent severe pull back.
In hindsight, silver investing was smart at $20 an ounce, and at $24 an ounce, and at $27 on ounce on the pullback in late January 2011. Actually, determining when it is too late is not a matter of price. I have seen silver price predictions of between $50 and $5,000 per ounce. If one believes a particular prediction, any price significantly below the predicted price will suit your long-term silver investing strategy. But nobody knows at what price silver will top out. There are too many unknowns.
My macro-view is that the U.S. will experience a monetary crisis over the next few years. This monetary crisis of the world's reserve currency will spread around the globe. Assets will flow out of the U.S. dollar and into gold and silver, and propel both skyward. Over time, I believe that the price of silver will rise more than the price of gold by about 300% from current prices. This is the key to the question, "When is it too late to begin silver investing?"
The price of silver will outperform the price of gold because the gold to silver price ratio is out of whack due to decades of silver price manipulation. For 200 years, the ratio ranged between 15:1 and 20:1. This made good sense since geologists tell us that the earth's crust contains about 17 times more silver than gold. Since 1985 that gold to silver price ratio has been as high as 100:1. The ratio was 46:1 at the beginning of 2011. On tax day 2011, it stands at 35:1. When the price ratio returns to the 200-year norm, the price of silver will have risen twice as much, on a percentage basis, as the price of gold. But it will not stop at the 200-year norm. Things have changed.
Primarily, supply and demand have changed. Industrial demand for silver has increased exponentially the past three decades. In 2010 industrial demand consumed 51% of worldwide production. This ever-increasing industrial demand has resulted in low inventory of physical silver. Less than 10% of the silver mined still exists. On the other hand, over 90% of the gold ever mined still exists, and less than 10% of annual production is used by industrial applications.
As silver investing demand increases, and industrial demand remains flat or also increases, the gold to silver price ratio will drop well below 17:1. I think it may drop below 10:1. But being a conservative guy, I'll stop concentrating on silver when the ratio hits 12:1.
Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http://www.esilverinvesting.com.
