It’s been seven years since the last big rally in precious metals. But the U.S. dollar and fiat currencies are in trouble, hinting that gold and silver prices could again go screaming higher.
As I explained last week, a collapse of the U.S. dollar is inevitable. The U.S. Dollar Index has been bouncing off of four-year lows for the past several weeks. But this cannot last much longer with a global trade war and U.S. equity correction looming.
The best way to prepare for U.S. dollar trouble is precious metals. Gold has been officially decoupled from the greenback for almost 50 years. But the two still generally trade inverse to each other.
And while gold is perhaps the safest way to hedge against a falling dollar, the most profitable option is silver. That’s simply because silver has more room to grow.
During the big precious metal rally of 2011, the price of gold reached over $1,900 an ounce. That’s about 50% higher than current prices ranging between $1,325 and $1,350 an ounce.
At the same time, silver traded for $50 an ounce. That’s more than 200% higher than silver’s current $16.50 price.
Gold prices have just begun to move higher after sitting dormant for weeks. But precious metal bull markets tend to follow a pattern.
What I mean is there’s a progression in price increases (and investor interest) that precious metals always seem to follow during bull markets. And it always starts with gold.
Gold is the very first precious metal investors tend to buy in bull markets, which pushes gold prices higher. But once the price of gold reaches a certain level, investors start buying up its more affordable cousin: silver.
There’s probably no better time than now to buy silver. If you’ve been reading Energy and Capital for a while, you know I believe the price of gold could swing over $5,000 during this coming rally. That would be a 300% gain from current levels.
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But with gold at $5,000, there’s no reason to think silver prices couldn’t reach $150 an ounce or higher. That’s an +800% gain from current prices.
The first thing investors tend to think about when considering owning any precious metal is physical bullion. And while I think it’s important to own some physical silver bullion, there are a number of things to consider.
First is storage. Physical silver is bulky. At only $16 or $17 an ounce, most serious investors can afford to stockpile pounds and pounds of the white metal.
For $1,350 you can buy and store one ounce of gold. But for the same amount, you can buy 5.5 pounds of silver. Before buying a lot of physical silver, you should consider where you’re going to store it.
Then there are the premiums. The premium for physical silver is always much higher than for gold on a percentage basis. Right now, the premium on a one-ounce American Gold Eagle is about 5%. Meanwhile, the premium on a one-ounce American Silver Eagle is around 20%.
Again, it’s important to own at least some physical silver. But the bulk of your silver portfolio should be in equities. Silver stocks are simply easier to own and more liquid relative to physical bullion.
Find some good silver stocks and sit on them. There are big moves ahead.
Until next time,
Luke Burgess
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
