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Silver and gold
have been recognized as wealth for over 5,000 years. Today most silver
investors are not really investors in the traditional sense; they are people
with and understanding and knowledge of history. David Morgan believes that
silver is an investment in seeing clearly how the world works. In this first
chapter of his five-part Guide to Silver Investing, he introduces some key
concepts. Read on…
How is investing
in silver similar or different to investing in gold?
Silver investing
is similar to investing in gold from the monetary aspect; meaning that silver
has all of the monetary qualities that gold has from a classic perspective.
It is fungible, divisible, possesses intrinsic value, is a store of wealth,
and a means of final payment.
Many in North
America think of silver as only being an industrial metal and yet silver is
both a monetary metal and an industrial metal. Because silver is
"indispensable" in the modern world, it becomes price inelastic for
many applications. This means that no matter how high the price of silver
goes, industry will still use silver because nothing else can replace it.
Silver has been
used for money for longer periods of time, by more people on the planet, and
in more places than gold. In fact, the word for money and silver are
identical in the romance languages and in the Torah. To me, the 5% or 6% of
the world's population arguing whether silver is money or not
hardly matters; the market will make the final decision and when
Mexico, South America, and Asia are all scrambling to protect whatever little
savings they have left, the silver market will explode, regardless of
anyone's belief.
What should an
investor look at in considering silver vs. gold?
There are many
reasons, but in my view, two are primary. First, to diversify within a
precious metals portfolio. Second, silver has added risk but also more
potential, in my view. So by adding silver an investor has an added
"kicker" of a more volatile holding that can reaper greater
rewards.
Can you explain
the silver/gold ratio and how investors should use that ratio when investing
in silver?
Basically, this
ratio illustrates how many ounces of silver are required to buy one ounce of
gold. Right now the ratio is about 70-to-1. This means it takes 70 ounces of
silver to purchase one ounce of gold. When I called (accurately) the
beginning of this silver bull market, the ratio was at 80-to-1 and over time
it drifted to around 50-to-1. This proves that silver did outperform gold for
a few years, however, during the recent "cash crunch" many
investors, hedge funds, money managers, institutions, banks, and brokers were
dumping everything to get to U.S. dollars to meet redemptions and margin
calls. During this time gold fared better than any asset class, including
silver, and the ratio shot up near 90-to-1.
The ratio can be
used as a trading indicator and personally, I do this, as do some of our
consulting clients. In fact, I did put this trade on when the ratio was about
where it is now, only to see it shoot up further. I expect the ratio to come
back toward the 50-to-1 area over the next 18 months.
Over time I
expect to see the ratio move toward the classic or monetary ratio of 16-to-1,
or in fact, during the top of this bull market we might see a 10-to-1 ratio.
No one really knows, but since silver is much more affordable than gold and
there are about 2 billion ounces less available now than when silver hit $50
in January 1980, it seems reasonable that many factors are lining up for
silver to shine brightly in the future.
What are the
primary ways individuals can invest in silver? (Buying the physical metal,
ETFs, mining equities)
We provide a
hierarchy: First and foremost, physical silver and gold, too. This is the
bedrock or primary basis of a precious metals portfolio. After that, you can
move into a higher risk-to-reward profile and that would be your mid- to
top-tier mining companies. After that come junior mining companies, and
finally, the rank exploration stocks searching for wealth in the ground.
ETFs are
primarily for institutional or very large investors and I have addressed this
in much greater detail on our website www.Silver-Investor.com. Anyone interested can read the Morgan Commentaries
and get my full perspective on the gold and silver ETFs.
The most
dangerous yet potentially rewarding are futures and options—this is for
risk capital only and generally is advocated for seasoned investors of high
net worth who can afford to risk some money for potentially very large gains.
Most beginners lose money here—even though their fundamentals may look
good.
David Morgan
The Morgan Report
Also by David Morgan
Mr. Morgan has been published in The
Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants,
Resource World, Investment Rarities, The Idaho Observer, Barron's, and The
Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review
for Kitco.
He is hosted monthly on Financial Sense with Jim Puplava.
Mr. Morgan was published in the Global
Investor regarding Ten Rules of Silver Investing, which you can receive for free. His
book Get the Skinny on Silver Investing is available on Amazon. You can subscribe to his
private Internet-only
newsletter, The Morgan Report, by clicking here.
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