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A Silver Lining to Gold
Posted By James R. Gorrie On February 15, 2012 @ 5:00 am In Articles,Featured,Hubert Senters,Senters Strategy | No Comments
So, say you’re watching your favorite early morning show/evening news/television series and the commercial comes on and what do you see?
Pitchmen wanting you to sell them...your gold.
And I mean any gold…watches, coins, jewelry, I haven’t yet heard them mention gold fillings, but I’m sure they wouldn’t turn any down.
And then, of course, a week or so ago, we heard a somewhat more clever pitchman—and definitely more successful—who announced from the Global Economic Summit in Davos, Switzerland that he was, in fact, buying gold.
Not gold stocks, not gold ETF’s, but the real, yellow metal itself.
And who is it who said this?
None other than the world’s largest, most successful bond trader, Bill Gross, Founder and CEO of Pimco.
Now, this is really a big deal…
The End of Paper Value
When the “prince of paper” as Bill Gross is called, says that he’s ditching US Treasuries for gold…
Well, you should sit up and take notice, because that is a very big symptom.
Mr. Gross’ pronouncement wasn’t just a nod to gold for its “investment value;” the ultra-successful bond trader also condemned the value, or rather, the validity of US Treasury-issued bonds as real, viable stores of value…
The bottom line is that the guy who made billions dollars trading bonds…doesn’t believe in the value of bonds anymore.
More specifically, he doesn’t believe that our economy will grow enough to support the debt—that is, US Treasury bonds—that are owed.
He also said that because of that, the world is seeing a new age of austerity being born…
That means that we will have less, and that the dollar will be worth much less…if not worthless.
Those are tough words for the US economy…and for us a people.
But Bill Gross isn’t always right…
He lost big in the past year or so betting that the US bond rates would rise…and they didn’t.
But Mr. Gross always puts his money where his mouth is…
In fact, he is starting a new fund at Pimco, a gold fund that buys and holds physical gold.
Now that begs the question…
”Shouldn’t you be buying gold, too?”
Well, there are arguments on both sides, but generally, a little gold in hand can’t be a bad thing.
An Affordable Store of Value
But here’s the problem if you don’t happen to be a millionaire or a billionaire…
Gold is bloody expensive.
The fact is, gold is already high, and though it fluctuates in value, is still very expensive to buy.
And, with the likes of Bill Gross becoming a convert, along with other factors of uncertainty in the world, it doesn’t look like gold prices will be falling through the floor anytime soon.
In fact, the price of gold may well go higher—much higher—in the near future.
So what do you do?
Well, when you can't afford prime rib, you eat hamburgers….both will fill the void.
In the case of gold, a cheap but very in-demand substitute is…silver.
And guess what?
In today’s economy an awful lot of folks are eating burgers…and buying silver.
In fact, by some reports, there is as much investor money going into silver right now as there is going into gold…
Yet, the gold-to-silver ratio is almost 50:1, meaning that investors are buying 50 ounces of silver for ounce of gold they’re buying.
Affordability for one…
People can actually buy silver in substantial amounts without selling an organ or their first born.
And, the price of silver usually tracks the price of gold, but the ratio varies quite a bit.
But the 50:1 ratio is not necessarily where silver will stay relative to gold.
Some historical gold/silver ratios are close to 16:1, which it is said, also the gold-to-silver concentration in the ground.
With such a strong demand for silver, many expect the price of silver to shoot to at least $100 an ounce, once the bull market in stocks comes to a close.
Will this come to pass?
It’s hard to say; because for one thing, the silver market has a history of manipulation by big time players like the Hunt Brothers in the 1970s.
Should this be a factor in whether you buy silver or not?
Since the reality is that stock market manipulation is as old as the hills, and yet most of us still own stock or have in the recent past.
Right now, the price of silver is about $33 an ounce, about $1,700 less than the price for an ounce of gold…
So a rise in silver prices to $100 an ounce would mean a trebling of silver’s value…
But even if it doesn’t get that high, silver is still a historically recognized store of value that paper dollars are not.
But one other reason to buy silver is that it is really easy to do so.
There are literally millions of silver coins out there to be bought from dealers, private sales, estate sales, and even on places like ebay and craigslist.
Will silver ever replace gold as the most in-demand investment?
Holding gold has been outlawed in this country before—during the last Great Depression.
Who’s to say that it won’t happen again?
In fact, if the US wants to defend the dollar here at home, it may have to outlaw gold...and silver.
But until then, silver is easier and cheaper to buy, with a lot of potential upside.
And those are…The Gorrie Details.
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