Hi Ho Silver!
Dear Rich Lifer,
In several recent articles I’ve told you that I’m actively looking for buying opportunities during this ongoing crisis but I haven’t specifically named anything.
Well, one of the areas I’ve been keenly interested in is silver.
Gold’s little sister is always hard to read because it is both an industrial metal and a historical store of monetary value.
In fact, this dichotomy is readily obvious when you take a look at what’s happening today.
Let’s start with a six-month chart of silver spot prices …
As you can see, silver has sold off very sharply … from roughly $18 an ounce at the end of February to just $12 today. That’s a 33% decline in less than a month.
Meanwhile, gold has also dropped but it’s only lost about 10% over the same period …
To put this action into perspective, silver is now trading at its lowest level in more than a decade.
That’s right: Silver is currently at prices last seen during the middle of the 2009 financial crisis.
Moreover, if you look at the relationship between gold and silver right now you’ll find something stunning – the widest gap in more than 5,000 years!
The Ratio is Wildly Out of Sync
Over the last couple of years, I’ve written quite a lot about the history of the gold-to-silver ratio and we don’t have enough space to go into that level of detail here.
But in a nutshell, the gold-to-silver ratio is simply the price of gold divided by the price of silver.
Taking an ounce of gold at $1,471 and dividing it
by an ounce of silver at $12.07 will give you a ratio of 121.87.
To put that into historical perspective:
- The actual ratio of physical silver to physical gold in the earth’s crust is estimated to be 18.75
- For thousands of years, the fixed relationship between these two metals for monetary exchange was in a range of 12 to 16
- Even in modern times, and especially since gold standards were abandoned, the typical ratio has hovered between 40 and 70
So we are in uncharted territory right now.
And while gold can clearly come down to improve the ratio, history suggests the gap is far more likely to be improved by a rebound in silver prices.
Ready to run out and buy silver?
And in doing so, here’s what I found…
The Premiums are Outrageous
A lot of physical silver choices are trading at absolutely ridiculous premiums right now.
Here’s just one example …
American Silver Eagles, produced by the U.S. Mint, are usually a great option for buying physical silver. They are released in limited quantities every year, and although they only have a face value of $1, they each contain one troy ounce of silver. Better yet, they are one of the items that can be held inside precious metals IRAs.
In a normal market, you might find ASEs trading at $2 or $3 over spot prices.
Right now, you can barely find any in stock at the big Internet-based dealers.
Most are quoting $10 over spot on pre-sales.
The best deal I could find from one of my favorite places was $7 over spot … for future delivery estimated one week out.
That means you’d be paying more than 50% per ounce over the price of spot silver right now!
It isn’t much better if you look at silver bars. If you can find any in stock, you might be looking at $6 over spot.
We could keep going down the list … all the way to so-called junk silver U.S. coins.
Two weeks ago, one of my favorite dealers was selling them at $0.39 over spot.
Right now, the same dealer is quoting $3.39 over spot on a bulk purchase of 715 ounces!
Here’s the Upshot
Silver looks like a long-term buy right now. But not physical silver. Too many panic-stricken people are looking to hoard actual metal and they are willingly paying huge markups to do so.
It’s the classic case of buying insurance after the flood has begun.
Therefore, I have personally been investing in the metal through the iShares Silver Trust (SLV) over the last week.
The SLV currently represents the quickest, cheapest, most liquid way to get exposure to silver prices … giving an investor 50% or more metal for every dollar invested over the physical alternatives.
Obviously, you are free to do what you want.
Silver can continue going lower from here.
And I fully understand the comfort that holding real metal brings as well as the arguments against paper proxies like the SLV.
But based on history and common sense, I think this is a great time to look at the most widely-traded Silver ETF and I’m putting my money where my mouth is.
To a richer life,