Time to Buy Silver?

Silver hit a new low of about $14. 20 per ounce on Friday, November 13th, 2015. This price level has not been seen since October 2008! A price chart can be viewed on the NASDAQ website using the following link.

http://www.nasdaq.com/markets/silver.aspx

This will no doubt spark a flurry of advertisement from companies whose business is selling silver to the public. I don’t know about you, but I am tired of hearing the advertisements claiming that it is time to buy silver!

My wife is tired of it too! She couldn’t care less about the adds themselves. It is more that she is tired of hearing my response to them every time! You see, the advertisements keep suggesting that the stock market is a dangerous place to put your money, and that silver is a safe haven. But a quick comparison of the two suggests that, depending on timing, the opposite could prove to be true.

Silver’s most recent high of $48.70 on April 28th, 2011. It had not seen that level since 1980. And even then, only made a slightly higher high of $49.25. Since the recent high on April 28th, 2011 silver has been trending downward to the point where it reached $14.20 on Friday, November 13th, 2015. That represents a loss of about 70.8% in roughly 4 and a half years. To put that in context, if you had invested $10,000 in silver, you would now have only $2,980 left! Some safe haven! On the other hand, during that same period, the stock market (as measured by the S&P 500 has gained 48.7%. So that same $10,000 would now be worth $14,870! A difference of $11,890! And that doesn’t include any dividends that could be earned through stock investment, which could have added another $1,000 based on an average dividend yield of around 2% for the S&P 500 over the last few years. So it is clear that over the last 5 years at least, stocks would have been the better choice by far!

I’m not saying that silver should not be a part of your asset mix. If inflation returns, or in times of uncertainty, silver could rise in price and help offset decreases in the value of other assets. But as in the case I made above, timing is everything.

So, at these current low prices, is it time to add silver to your portfolio (or to increase your holdings if you already have some)?  That will have to be a personal decision dependent upon your particular situation, specifically, your personality, your past purchases,  and your personal goals.

If you have been thinking about allotting some of your investable assets to silver, but have been sitting on the sidelines waiting for the right time to make an initial purchase, nobody could blame you if you justified buying in at the lowest price in over 7 years!

On the other hand, prices have been lower before, and they could go lower again. Prices have been dropping sharply! In fact, prices had dropped 11 out of the past 12 trading days up to Friday, November 13th.  And after the weekend and all the tragic events in Paris, the price only increases by about 2 cents today. Trends tend to continue. So I would not be surprised to see prices go lower before a reversal. Then again, world events, or decisions by the Fed can cause a trend to reverse unexpectedly, so it could be that these are the lowest prices we see in a long time.

Bottom line is that if you would be kicking yourself for not getting some more silver (or an making an initial purchase) at today’s prices if they happen to turn around and head back up tomorrow, then by all means jump in. However, if you think it would cause you stress buying some silver at $14.20 and prices dropped to $10. Then sit on the sidelines and see what happens.

One way to take all the stress out of making the decision is to buy a fixed dollar amount at a pre-selected interval regardless of where the price is. This is called dollar cost averaging. The result is that you end up buying more ounces of silver when the prices happen to be low, and less ounces when the prices happen to be high. Therefore your overall price per ounce tends to be on the low side of the spectrum. The time interval between purchases does not matter. So you should choose a time interval that allows you to buy in sufficient quantities to minimize your commission costs, which in the case of physical silver can be substantial.

Let me know your thoughts!

James