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Invest Money in Silver Vs Gold in 2011?

You can invest money in silver at over $40 an ounce in 2011 or invest in gold at about $1500, but before you invest I’ve got a story for you. Timing is everything when you invest money in these precious metals, so I’ll give you some background first.

Over the years silver (the white metal) has been viewed as the poor man’s gold (the yellow metal). When gold prices fly like an eagle silver usually follows suit, sooner or later. Old heads like me like to keep a traditional rule of thumb in mind when deciding where to invest money in the silver vs. gold arena. The yellow stuff sells for about 50 times the price of the white stuff over the long term, our rule says. If silver sells at $40 gold should sell at $2000. Since the latter sells at only about $1500, it’s a bargain, relatively speaking. The white stuff is expensive in 2011.

The tables have turned dramatically over the past couple years. Silver prices hung around in the $5 range for years, and were at $9 going into 2009. It was a great place to invest money over the next couple of years, when it was cheap compared to gold. Then the white metal soared 35% in the first few months of 2011, when gold was up only 4%. That turned the tables. Neither precious metal is cheap by historical standards, and what goes up like a rocket can fall like a rock. That was the case when silver hit $50 in January of 1980, under unusual circumstances.

In an attempt to corner the market, the wealthy Hunt brothers sent the white stuff from $11 in September of 1979 to $50 within a few months by buying vast quantities. When they could no longer support the price it crumbled to below $11 two months later. These were extreme circumstances, but we’ve seen two dramatic drops in the stock market since the year 2000. All markets are subject to extremes, and precious metals are no exception.

The average person can invest money in silver or invest in gold in 2011 by simply opening a brokerage account with a major discount broker. If you want to invest in either I suggest stock symbol SLV or GLD, which are exchange traded funds that track the price of their respective precious metal. This is the best way to invest money in these hot commodities for one primary reason. If the tide turns quickly you can sell and get out in a matter of seconds during business hours Monday through Friday.

I have long recommended that average investors invest money in precious metals as a way to add diversification and balance to their total investment portfolio. At 2011 prices I would cut back on my holdings, not increase my investment. If you missed the boat don’t be concerned about silver vs. gold in 2011. Wait until they’ve both fallen significantly – apply the 50X rule – and then invest money in the cheaper of the two.


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