There has been much talk lately about the price of gold, and how it has been reaching historic levels. Recently, it has closed at over $1,500 per ounce, which represents a huge increase over just a few short years ago. However, its performance pales in comparison to that of silver. Often in the shadows of gold in terms of investments, silver has shown staggering price increases in recent years.
If you looked at the price of silver 10 years ago, as of April 2001, you’d see it trading at just over $4 per ounce. As of the most recent close at this writing (4/25/11), silver is currently trading at about $47 per ounce. Think about that rate of return! Yes, it’s quite impressive. Those who invested in silver a decade ago have made out incredibly well.
Can you imagine a $40,000 investment turning into $470,000 in just a decade? That’s about what would have happened had you bought 10 years ago.
That type of return just seems hard to sustain. Look at what happened to tech stocks in the late 1990’s. Skyrocketed, then they plummeted. Look at the once blazing real estate market, how people made a ton of money in it in the last decade before the bottom fell out in many markets over the last few years. All good things must come to an end. I wrote about this in my post on investment bubbles. This phenomenon has been in play since the Dutch Tulip Bubble of the 1600s.
Now, gold is reaching some pretty high prices as well, and many people have called this as a bubble waiting to burst. Whether or not that happens remains to be seen , but it’s being assessed that way by some people. I wonder what everyone thinks of silver?
Clearly, silver has increased in price at an even more prolific rate. Check out the charts below. They illustrate the following historical prices, as of April 25/26, 2001 to 2011:
- Dow Jones Industrial Average
- Gold/Silver Ratio
- Dow/Silver Ratio
As can be seen, while gold has increased over time, silver’s recent increase is quite sharp. The Gold-to-Silver ratio declined quite a bit since 2001, from 60 to 32. The Dow-to-Silver ratio has declined from 2,441 to 265!
This isn’t the first time silver has increased sharply in value. After trading in the $5 range in the late 1970’s, it spiked up in price dramatically in late 1979/early 1980, reaching over $49 per ounce. One reported factor in this decline was the attempt by the Hunt Brothers to corner the market. In any event, silver quickly retracted in price and dropped close to the $5 level within a few years.
It appears that a silver bubble is forming.
This assessment is my own based on this analysis. I’m not an investment professional, and this is not a recommendation. That said, I’m really wondering when the price declines will kick in. Growth in silver prices seems unlikely to continue indefinitely, right? After all, what investment keeps going up without ever dropping?
My Questions for You:
What do you think of the silver bubble hypothesis?
Also, what do you think this phenomenon is telling us? Is it pure speculation, a sign of coming inflation, response to a weak dollar, or an indication that perhaps stocks have room to grow?