“Buy gold now!”
So say many talking heads and investment writers.
Their rationale is simple: Having hit a high of $1,900 per ounce in both August and September, the price has since tumbled to around $1,740.
But does that fact alone make gold a screaming buy?
While I’m bullish on gold, the fundamentals suggest that silver may actually represent the better investment here. Let me explain…
Silver: Gaining Support and Outperforming Gold
Silver is a unique metal in that it boasts a variety of industrial applications, in addition to being a great safe haven and store of wealth.
While not nearly as coveted as gold, platinum, or palladium, silver has a very strong following among the hard money crowd. And it’s now garnering support from new metals investors – ones spooked by the price of gold.
Silver is the only metal that has actually outperformed gold by a margin of more than 2-to-1 (from low to high) over the past decade.
With that in mind, the price ratio between the two metals is worth a closer look…
Over the past 35 years, the ratio between gold and silver prices has averaged about 50 ounces of silver to one ounce of gold.
Today, silver trades for $35.28, which puts us nearly spot-on the average, with the ratio at 51-to-1.
So how does this help us going forward?
Simple. We look at the ratio’s historical highs and lows and then decide which scenario is more likely.
At silver’s high point of $48.44, which happened earlier this year, the ratio dropped to around 30-to-1.
During the metal’s worst days, when it traded for $3.73 in 1992, the ratio swelled to 90-to-1.
And for silver to revisit its zenith versus the price of gold, it would need to almost double in price.
On the other hand, silver would have to fall by almost half its price to visit its dog days.
I believe the more likely scenario is silver moving much higher. Why?
Because silver clearly bottomed in 1992, with gold bottoming at $250 an ounce a few years later, meaning both metals are now in a confirmed bull market.
Earlier this year, when silver reached its post-Hunt Brothers peak, it traded at a ratio of 33-to-1 versus gold, down from the 51-to-1 today.
(In the 1970s, Nelson Bunker Hunt and William Herbert Hunt accumulated massive amounts of silver in an attempt to corner the global market. The price soared, but their endeavor failed, as lawsuits charged them with conspiracy to manipulate the market.)
Judging by how gold has rallied off its recent lows… the mass money being printed in the United States, Europe and Japan… continuing social and financial crises across the globe… and lack of widespread investor participation…
The argument for a sustained precious metals bull market isn’t hard to envision.
Such a reality makes silver a bargain at current levels. Not just because it’s down almost 30% from its highs, but also because when the metal has hit its historical peaks, relative to the price of gold, the ratio was closer to half where it is right now.
So if you believe that we’re in a gold bull market that will continue for some time – as I do – it makes much more sense to place your bets on silver. Doing so will give you a bigger bang for your debased buck!