With silver prices down some 30% year-to-date, is now a good time to buy silver?
We at Money Morning love the buying opportunity being presented in the silver market. With a near zero interest policy in the U.S. likely to stay in place for at least a few more years, and global monetary printing presses continuing to run at full speed, precious metals like silver are once again a lucrative, and now much cheaper, asset.
Rick Rule agrees.
Money Morning recently spoke to Rick Rule, president of Sprott Asset Management and founder of Global Resource Investment Ltd., about silver’s decline in 2013 and what investors should do now.
Here’s what he said about if now is a good time to buy silver…
Rick Rule on Buying Silver Now
To get a better understanding of silver’s recent rout, Rule said it’s important to take a look back at the white metal’s 1970’s bull market when it went from $1.50 an ounce to $50 an ounce.
“During that eleven-year run between 1970 and 1981, there were probably 10 or 12 declines of greater than 10%; three declines of greater than 20%; and one decline in 1975 that was greater than 50%,” Rule noted.
Rule acknowledged that silver’s recent rout is “inconvenient” for silver investors – but also part of the metal’s volatile cycle.
“It is natural, normal and healthy in the context of a bull market,” said Rule. “Things don’t go straight up, because self-fulfilling prophecies seldom in fact are.”
Citing the 100% jump in silver prices over 2009-2011 timeframe, Rule said that kind of unprecedented move, from a technical standpoint, almost necessitated some kind of pullback.
So with silver prices depressed, Rule said it’s a great time to buy.
“That doesn’t suggest it [silver] can’t fall further,” he added. “In 1975-1976, the silver price fell by 50%. I’m not suggesting that can’t happen again. I’m just suggesting that every circumstance that occurred in 2010 that was bullish for silver – every single one exists today. What’s changed is paradigm and price. If you did believe the thesis in 2013, certainly the fact that the metal is cheaper is better for investors.”
How to Invest in Silver
So if you want to buy silver, Rule said the method to use depends on the individual investor.
“For a lot of my life I focused on silver equities because I know enough about the mining business to understand how to differentiate between the good companies and the bad companies,” said Rule. “But most people make the mistake of assuming that because silver is going to go up the silver miners are going to go up.”
“I think that’s a mistake,” explained Rule. “If you think the metal is going up, buy the metal. You buy the silver miners on an individual basis if you think there is something transformational going on inside the company. In other words, you buy the company for the company’s sake, and get the increase in the silver price as icing on the cake.”
Rule says an optimal way to invest in silver is to buy the physical metal, such as coins and bars. But with silver prices at such affordable levels, accumulating a sizable store of value in these tangible assets can materialize quite quickly and can be cumbersome.
“In my earlier years, I preferred to have, hold, touch and pet my own silver,” said Rule. “That’s become increasingly inconvenient for me, as the absolute amount of silver I’ve owned has increased.”
He warns investors to be careful of what he calls “midnight gardening.” That is buying, taking possession of and holding silver.
“I don’t advocate buying physical silver and keeping it at your house. That exposes you to a whole different set of non-economic ricks, including having visitors you wouldn’t normally invite over for lunch. I would advise if you do have physical possession to have secure storage offsite so you don’t expose yourself to physical risks,” Rule shared.
Another alternative is to hold silver in certificate form, which Rule favors now that his holdings have swelled. But he says it’s an individual choice.
This can be done through exchange-traded products like the Sprott Physical Silver Trust ETV (NYSE: PSLV).
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- Money Morning:
Investing in Silver: Price Dip is a Good Time to Buy
- Money Morning:
How to Buy Silver Coins
- Bloomberg News:
Gold Jumps Most in a Year as Bernanke Backs Sustained Stimulus
Gold climbs to 2 ½ week high on Fed stimulus hopes
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