Why You Need to Invest in Silver, Reason #1: It’s Undervalued… And a Huge Opportunity
To invest in silver is just plain smart because it is the perfect hedge against a growing trend of inflation. Silver is accessible to the average person to invest in, because of it’s relatively low price (especially in comparison to gold). Silver also has an incredible potential upside, as many consider it to be undervalued even when the spot price is between $30-$50 an ounce. The reason for this bullish outlook on silver is based on the dynamics of supply and demand as well as other factors.
There are a few important dynamics to consider, when looking at silver as an investment. Firstly, there is a much smaller physical supply of silver than it’s precious metal cousin; gold. There is also a high industrial demand for silver, whereas gold is not commonly needed in industrial processes. Silver is used in many technological devices that we use everyday, such as computers, keyboards, smart phones and more. These and other electrical/electronic products use silver for its superior conductivity, to make solder solutions, electrical contacts, and high capacity batteries. Other notable uses of silver include: dental fillings, photography, and specialized mirrors. Silver is the only catalyst available today used to create an important industrial reaction; the conversion of ethylene to ethylene oxide (later hydrolyzed to ethylene glycol, used for making polyesters).
Just to make clear how undervalued silver truly is, the ratio of available physical gold in comparison to silver is 64:1. The price difference between gold and silver through most of the 19th century has been roughly 15:1. Throughout the twentieth century the ratio was consistently 47:1. In gold/silver ratio in October 2012 has hovered around 54:1. Another way of coming to a conclusion that silver is undervalued, is to compare global production of gold versus silver which is 8:1. This global production ratio points to silver being the rarer of the metals, indicating that the current values of silver in comparison to gold is simply out of whack. The truth is that the monetary ratio is out of line and due for a future correction. This makes the future prospective for silver very bullish indeed.
However there is another important factor at play called inflation, which is directly influenced by national monetary policy.
Why to You Need to Invest in Silver, Reason #2: U.S. Monetary Policy & Inflation
U.S. monetary policy causes excess inflation because of their program of ‘Quantitative Easing’ otherwise known as ‘printing money out of thin air’. The U.S. Federal Reserve and politicians in Washington are addicted to debt and quantitative easing is their ‘no-limit’ line of credit. Excuses that our government leans upon to run the printing presses to infinity is to; increase liquidity in the markets and to also be the biggest buyer of U.S. Treasury Bonds. U.S. T-Bonds have traditionally been purchased by countries around the world as a safe bet for a return on investment, with China having historically been one of the biggest buyers in of our debt in world. This is essentially how our government has funded deficit spending up until this point. In the past year however, countries from around the world like China have all but completely stopped buying U.S. T-Bonds and have opted to invest in physical assets such as oil and gold. A big part of this shift is because since 2007 the federal reserve has implemented a near zero interest rate return on these bonds (making whoever invested very big losers). Not to mention the fact that to not buy U.S. T-Bonds is a direct blow to U.S. global economic hegemony. As a result of a lack of buyers for U.S. debt, the number one buyer of bonds has turned out to be the United States Federal Reserve. You may ask… where do they get the money? They print it out of thin air! This dynamic has a negative effect on the dollar as a store of value and eats away at our buying power over time (i.e. inflation). This is comparable to paying down one line of credit with another and is unsustainable in the long term. This type of action is one of desperation, done in an effort to keep one’s head above water until another way is found to generate the money to pay down the debt. The Fed has the ability to print money to infinity, so there is no motivation for politicians to change course on monetary policy and balance the budget. Government spending will continue to outpace tax revenues, and the need to print money to keep the system afloat will become greater over time. Inflation is a trend that is not going away anytime soon. At the same time that quantitative easing is ruining the economy, it also presents an opportunity to increase one’s position of wealth by trading in dollars for hard & undervalued assets like silver. Lets dig a little deeper into the actual process of quantitative easing and where it causes inflation in the economy. The following video does an excellent job of explaining quantitative easing:
Why You Need to Invest In Silver, Reason #3: Inflation Is a Trend
The act of quantitative easing pushes an excess of dollars into the money supply, which improves liquidity in the short term but also causes greater inflation in the medium to long term. One of the first places to watch for the effects of inflation are food prices at the grocery store. The following chart from www.BusinessAdvisor.com demonstrates the rise in food prices from 1990 – 2012:
Something you should consider, is how the U.S. fiscal policy radically changed course in 2007. This is when the first federally sponsored bailouts of financial institutions took place, and was also the beginning of the credit crunch problem. The short term solution employed by the Federal Reserve to solve these problems was to simply run the printing press. Since the first installment of quantitative easing, the Fed has printed about 2.1 Trillion dollars into the global money supply. In light of these factors the incredible increase in food prices since 2007 begins to make more sense. Food products are not the only are in our lives that has become more expensive because of inflation. Gas prices are affected by inflation in the price of oil. For example when oil hits $148 per a barrel the average price of a gallon of gas hovers around $5 (as happened in 2008). Higher gas prices increase pressure on the supply side of the economy, as it costs more to deliver goods to store shelves which drives up the price of food, petroleum based products and more. Of course the value of precious metals also rise with inflation, so there has never been a better time to invest in silver.
Why You Need to Invest In Silver Reason #4: Quantitative Easing is Here To Stay
The latest round of quantitative easing titled “QE3” was just announced this past Sept. 13th. This money printing announcement was made in stark contrast to it’s previous incarnations. Previously the Federal Reserve put limits on how much money they would print, and end the stimulus program by a certain date. Ben Bernanke announced that QE3 would be an open ended deal, meaning that they intend to print as much money as them deem necessary to fix the economy. QE3 will continue through the beginning of the economic recovery that the Fed claims this will program will bring about. This means that things in the economy have denigrated to the point where the only solution our politicians and the Fed can think of is to keep applying ‘the QE medicine’ to the ailing economy. Other details of the agreement include a program where the Fed will purchase $40 billion in agency mortgage-backed securities every month (think bad investments on bank balance sheets). A program called “Operation Twist” has been extended to the end of 2012, which is where the Fed sells short term bonds for longer term bonds to drive down mortgage rates. Fed purchases driven by these programs will add $85 billion a month to the Fed balance sheet until the end of 2012. every month until the end of the year. Lets not forget to mention that the near zero interest rate guidance has also been extended until 2015. So as you can see, this quantitative easing trend isn’t changing anytime soon!
Why You Need to Invest in Silver Reason #5: It is The Perfect Hedge Against Inflation!
Silver has historically been considered money before the introduction of fiat currency (fiat means backed by nothing, except the good faith of a government to make good on it’s debts). If you trade in your dollars for silver you will benefit in a couple of ways. You will not lose buying power to inflation. The growth in the value of silver is spurred on by multiple trends including: growing inflation, supply and demand, scarcity and loose global monetary policy. With all of these trends in play and with no signs of imminent change, you are more likely to increase the value of your savings by investing in a physical holding of silver. A lot of people are aware of at least a couple of these dynamics and the awareness is steadily growing. To see this in action, all you have to do is look at the annual sales of American Silver Eagle bullion coins.
-In 2007, the U.S. Mint sold 9,887,000 ounces of Silver Bullion American Eagles coins.
-In 2008, the U.S. Mint sold 19,583,500 ounces of Silver Bullion American Eagles coins.
-In 2009, the U.S. Mint sold 28,766,500 ounces of Silver Bullion American Eagles coins.
-In 2010, the U.S. Mint sold 34,662,500 ounces of Silver Bullion American Eagles coins.
-In 2011, the U.S. Mint sold 39,868,500 ounces of Silver Bullion American Eagles coins.
So far sales of Silver Bullion American Eagles are on pace with 2011 numbers. The annual growth in the sales of silver bullion coins is a steadily increasing trend, that does not seem to be ending any time soon. People are worried about protecting their wealth due to the forces at play in the economic system, and they are doing so by trading in their dollars for physical silver.
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