In the last few weeks, I’ve written some politically incorrect articles that have caused my inbox to be filled to the brim with questions, angry responses, and praise. In the end, I’ve been saying some things that a lot of “precious metals experts” should be saying, but just haven’t been.
Namely that precious metals aren’t magical, they can drop as quickly as they rise, and they go through cycles of major bull markets and major bear markets. Timing these markets is an easy way to lose your shirt, a lot of people will probably find out the hard way. Either way, the number one question I’m asked right now is about the current price of silver. Namely… is silver overpriced?
Having the Right Foundation
I’ve explained many times that I’m a huge fan of the permanent portfolio strategy. The method essentially focuses on having a well-balanced portfolio with a portion in precious metals, a portion in stocks, a portion in long-term bonds, and a portion in Treasury Bills. The strategy has some disadvantages, but overall it’s a good conservative long-term strategy.
In other words, regardless of the answer to this question, you shouldn’t try to rush out and time the market — unless, of course, you have a strong desire to lose money.
Silver and gold shouldn’t be purchased to get rich, but should be purchased for the sake of having value and wealth if the proverbial feces hits the fan. It’s not complicated: gold and silver have never lost all value, and should be owned for the sake of insurance, not a get rich quick scheme.
Still, let’s look to the answer to the question: is the silver prices bubble about to burst?
Bursting Bubble or Strong Boom?
Silver has been going up for the last year on an extremely consistent manner, doubling in value since this time last year. Yeah, it’s certainly in a bull market. The rate silver is increasing isn’t anywhere near typical rates, and there’s no way it can keep up this kind of increase in prices for long. Nothing can.
If the entire asset class continued to grow at this size consistently, it wouldn’t take too long before the entire world economy could be purchased with a few pounds of silver… something that won’t ever happen. So yes, the bubble has to end sometime.
Here are a few thoughts and observations:
Demand Can Collapse. If a few of the top 10 biggest silver investors sold off their assets, it would probably cause an unrepairable hole in the bubble, leading to it popping in a dramatic fashion. If stocks continue to go up and the economy looks healthy, silver could collapse due to short-sighted investors.
So Can the Dollar. The dollar could also collapse completely, sending gold, silver, and oil prices hitting the ceiling.
Poor Man’s Gold. They call silver the poor man’s gold for a reason… it’s cheap enough that a poor guy can buy a few ounces to feel rich. This is scary, because silver markets are usually the last precious metals markets to expand, because poor people are a big influence in the market, and, well, they’re almost always a day late and a dollar short, as I’ve written about before.
In the end, there’s no exact way to predict the price of silver, the price of oil, the price of gold or anything else. If there was, we’d all do it and get rich. Unfortunately, we have to plan our portfolios for whatever might happen — another reason to check out the permanent portfolio page listed above.