If there’s one asset that’s heated up over the last several months amid tensions in the middle east and a second round of the Federal Reserve’s quantitative easing, it’s silver. The price has risen so dramatically, some 20% since January 1, 2011 through today, that investors may be wondering what actions they should take. For those who have not acquired the precious metal, the obvious question is, should I buy now or is silver in bubble territory? Those fortunate enough to have seen the crisis writing on the wall in 2008 and before, and have seen a 200% or more increase in the value on their holdings to date, may be considering selling and locking in profits.
No one can predict what happens next. The fact that silver has “gone to the moon” as metals bugs like to say, should raise awareness and caution in any diligent investor. After all, the last time we saw such meteoric price rises in the summer of 2008, when stocks, commodities and home prices were reaching all-time highs, and precious metals were pushing higher than they had in twenty years, it ended very badly for anyone invested in just about any asset other than the US dollar.
Is there cause for alarm today? Are silver and gold, along with equities and commodities, destined to see yet another massive correction or collapse, as they did when the markets bottomed out in late 2008 and early 2009? The trigger for the last asset crash was blamed, in part, on rising oil prices and food costs, and we are very clearly approaching similar territory today. If gas prices reach that $4.50 mark like they did before many experts, both mainstream and contrarian, have voiced their opinions that the economy will revert back to no-growth or negative growth, completely disintegrating any semblance of recovery that has been perpetrated on the American people and global populace.
The end result, as in 2008, will likely be a collapse in asset prices.
But will precious metals once again collapse along with equities and commodities, or have we reached the long awaited ‘decoupling’ phase, where tangible assets and historical monetary instruments diverge from traditional paper investments like stocks, or debt based assets like real estate? A similar decoupling occurred in the 1930s, when the Dow Jones and gold assets went their own way:
According to the chart below, silver versus the Dow Jones has outperformed significantly, with the Dow experiencing a collapse versus silver of 86% over the last ten years:
The above chart indicates that we are already seeing a decoupling in terms of value.
Whether you are a new investor deciding whether or not you are going to buy silver at today’s prices, or are currently holding silver related assets and considering whether or not to sell or buy more, we suggest watching the following interview with trusted analyst and financial manager Eric Sprott, whose Sprott Physical Silver Trust is one of the very few “paper” investments that is physically backed with vault-stored (never to be leased) precious metals.
In his latest interview with Canada’s Business News Network, Sprott provides some key reasons for why silver, although priced much higher today than ten years ago, will continue to rise and likely become one of the top performing investments of this decade. According to Sprott, there are various data points that “scream at you that the price of silver has to go higher.”