With Gold At New Highs It's Time To Stock Up On Silver

Slow news day, huh?

We are kidding, of course, good patrons. There’s been some pretty big news.

The  S&P was forced to admit what we fringe pundits and kibitzers have been saying for years: U.S. debt is not quite as sound as the official ratings agencies would like you to believe.

The S&P 500, Dow and Nasdaq all took the official admission pretty hard. The S&P and Nasdaq are down 5%, the Dow nearly 4%.

Gold meanwhile is all smiles and back-slapping. We pulled up the charts this morning and due to our ingrained bias we immediately looked at silver. Nothing much going on there…

We usually don’t even bother looking at the gold price. Silver is where the big moves usually happen. Whatsoever gold does, silver often does twice as much…

And silver is what we’re counting on to increase our purchasing power as gold does little better than protect it…

But it was gold that made the big boy moves today! Up over $1700. We check our records. And our pulse. As near as we can tell this is a first.

As we put the finishing touches on today’s little ditty gold is at an all-time high of $1718. Gold is almost as expensive as platinum right now.

Silver meanwhile is feeling lethargic. It can’t seem to be bothered to get out of bed even as gold is circling the block a second time on its morning run. Silver remains just below $40 again today, and only a dollar above its Friday close around $38.

Gold’s Friday close was about $1650. That’s a 4.2% gain against the Dow’s 3.8% loss (again, as of this writing)…

None of this should come as any surprise, however. Things are happening as they ought.

Adjusted for inflation, gold is still nowhere near its 1980 high of a nominal $850, or about $2400 in today’s dollars.

Securities meanwhile are inflated in value, pumped up for at least a generation by the actions of the central bank. These actions have been eroding the value of the dollar, long cut free from its golden moorings. Gold’s price has failed to reflect this reality for longer than you’d think was possible.

But now stocks can’t keep up despite the dollar’s sacrifice. The dollar’s decay, however, lends gold renewed strength.

The Dow and gold are seeking each other out, planning a rendezvous at price parity somewhere. Their meeting point might have been 3000 before the Fed opened the spigot. It point may be 5000 as things stand right now. It could be 10,000 or more if the Fed keeps easing.

Of course at that point, anyone holding U.S. dollar or U.S. debt or corporate shares won’t be happy.

And of course gold is hitting new highs. World leaders have pledged to do “whatever it takes to restore confidence.”

We tremble as we copy those words from the headlines. It takes a shot of whiskey and a lingering glance at our gold coins to calm us down…

It’s government borrowing and central bank easing that created this situation in the first palce. More of the same “help” will just forestall the day of reckoning…and make it that much worse when it finally arrives.

Gold is a very present help in times of government debt and currency troubles. More and more people are waking up to that fact…which is why the price of gold is rising inexorably higher.

Personally, however, we’ve always been a much bigger fan of silver than gold. In our opinion silver was the Trade of the Decade. You could have gotten the stuff for under $4.90 per ounce ten years ago during 2001 and for as low as $4.10. You could have sold it for as much as $49 at its peak this year. Even now you can get nearly $40 for an ounce of silver.

Gold was meandering along between $250 and $300 when silver was under $5. Even with its solo surge today to an all time high over $1700, gold has not quite gone up sevenfold in price from its low 10 years ago. The silver price meanwhile has multiplied over ten times its 2001 low and even now is eight times its 2001 prices.

Silver has proven itself to be more energetic than gold. Though its price is also partly merely a reflection of the dollar’s decay, silver is increasing in purchasing power faster than gold is.

The gold and silver gap has increased, a minor and expected blip on the long-term trend that will see that gap narrow and get closer to historical norms (though there is no guarantee we will ever actually reach the historical ratio again…but you never know…).

The gold-to-silver ratio got nearly as low as 30 in late April during silver’s surge. Now with gold over $1700 the ratio is over 40 again. Silver is currently on sale relative to gold.

So not to take the wind out of gold’s sails…but this strikes us an awfully good time to pick up some more silver.

Gary Gibson
for Whiskey & Gunpowder

The Daily Reckoning