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If you have to own one precious metal buy silver not gold

August 15, 2012 - 9:21am

Veteran investor and an early spotter of the commodities bull market, Jim Rogers says if he could only invest in one precious metal this summer it would be silver. Why is that?

Silver prices are more volatile than gold. And over the past five years gold has actually been a slightly better performer. The central banks hold gold, not generally silver.

Money printing

As an investor you always look at two things: upside and downside potential. So if you are optimistic about the outlook for precious metals – and with all the central banks of the world with their fingers on the button to let the printing presses roll this is a logical conclusion – then does gold or silver have the most upside?

It does just have to be silver. Consider this: silver is the only major commodity not to have reached a new all-time high in this bull market; silver is still cheaper than it was 32 years ago, prices are astonishingly depressed.

Then you can consider the impact of an economic slowdown on silver. Yes its industrial use will go down but so will its production because that is linked to the output of copper and zinc mines.

Investment demand for precious metals will take over in any case from industrial demand. And once the gold price heads up then silver will follow. You get 50 times more silver for your money than gold.

Historically it was 12 to 15 times the amount of silver for gold, so that also looks like a correction just waiting to happen. Why is it that silver has become so cheap by historical standards?

It goes back to the price collapse of 1980. Prices then got to such a huge spike due to the cornering of the market by the Hunt Brothers that production was ramped up and huge stocks were accumulated. The Hunts market manipulation invited a similar response from global central banks.

Once silver prices slumped from $50 there was a 20-year bear market with enough oversupply to keep prices down for two decades. Silver’s recovery since the millennium has been spectacular, from $3 an ounce to almost that previous all-time high 15 months ago.

Autumn season

But the best is yet to come. Will it be this autumn when the central banks turn on the printing presses to maximum to save the world economy? The Fed with QE3 and the others following?

Or will there be a 2008-style financial market crash with Greece as the next Lehman? That would be bad for precious metal prices as it was in 2008, although they made a spectacular recovery very swiftly.

You never can be guaranteed success in investment. Patience and a lack of borrowing always buys you time and that is the greatest asset of all. But we think those who stick with silver over gold will get their pay day soon.

The next edition of the ArabianMoney subscription newsletter will consider how best to invest in silver (subscribe here).

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About Peter Cooper / Commentary Author

Peter Cooper is the editor and publisher of the ArabianMoney investment newsletter and the popular financial comment website www.arabianmoney.net.

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