Is Silver Still a Good Investment?

Back on April 9, 2009 I wrote an article called Why Silver Can Make You Rich. At that time the price of an ounce of silver was around $12.50 and I explained why silver was a good buy at that price and possibly the buy of the century. Today silver is going for around $34.50 an ounce. So is silver still a good buy today?

Why Silver was a Good Buy in April of 2009

As I explained in my previous article silver was good buy at that time for two main reasons.

Gold/Silver Ratio out of Whack from Historical Norms

First the price ratio between gold and silver was way out of whack from historical norms and likely to move back towards those norms which meant a higher price for silver.

Historically gold and silver traded at roughly 15 times in price. That is one ounce of gold was equal to roughly 15 ounces of silver. This was the historical norm for many years because it was thought that there is roughly 1 ounce of gold in the earth for every 15 ounces of silver.

In April of 2009 silver traded for roughly $12.50 while gold traded for roughly $900 and ounce. So the gold to silver ration was roughly 72 times. You could buy 72 ounces of silver at that time for what one ounce of gold cost.

Today the gold to silver ratio has come down from there. While silver sells for roughly $34.50 today gold goes for roughly $1,430 per ounce. So the gold to silver ratio today is 42.

Inflation is Coming

Due to the economic crisis that existed worldwide back in 2009 I felt at that time that central banks and other money creating government entities would resort to inflating money supplies around the world. I was right and we are now seeing increased commodity prices around the globe as a result of that inflation. As inflation picked up people have as they always will turned to precious metals like gold and silver to protect their wealth from declines in paper money.

Central banks can print as much paper money as they want to and continually devalue that money through inflation. But central banks cannot print gold or silver. There is a limited supply of the two precious metals. As paper money loses its value gold and silver prices increase.

Since April of 2009 gold had increased from $900 to $1,430 per ounce and silver from $12.50 to $34.50 per ounce. Will these price increases continue? Yes so long as central banks like the Federal Reserve in the United States keeps printing money and releasing it into the economy by buying government bonds. The Fed pays for those bonds with newly printed money thereby inflating the money supply and devaluing paper money.

Until that process stops in the United States and around the world gold and silver prices will likely continue to increase.

So is Silver Still a Good Buy Today?

Well the gold to silver ratio has certainly declined from 72 in 2009 to 42 today. But there is still plenty of room to go if the price ratio is to ever go back to the historical norm of 15 to 1. Even if gold prices remained at present levels silver could still go higher to re-establish the historical norm of 15 to 1. At today's gold price, silver would have to rise to over $95 an ounce to reach a 15 to 1 ratio with gold.

As long as central banks like the Federal Reserve keep inflating the money supply the price of gold and silver should continue to increase. Once the Federal Reserve starts to raise interest rates we will see the inflation be released into the United States economy as the velocity of money will soar with higher interest rates.

So I still believe silver will move higher in price over time as the factors discussed here continue. Silver has already had a big move up though from when I recommended it back in April of 2009. So I am not as bullish on it as I was then but still believe the price will go higher.

A lot of factors can change. Central banks can stop printing money and stabilize the price levels of paper money. The gold to silver ratio could stop falling and start climbing again. But I believe those factors are in the future and silver has room to go higher here. I'm not as high on silver today as I was in April of 2009 but I'm still long silver.

Sources:

Why Silver Can Make You Rich

Silver to Gold Ratio in US Constitution is 15 to 1

Silver as an Investment