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Why Silver Could Be the Biggest Bubble of All-Time

By Edited Nov 13, 2013 0 0

There are many reasons to like silver as an investment going forward. The shiny metal is used not only as an investment but in industrial applications. Silver is literally everywhere in our world - we use it in our computers, our cell phones, silverware, photography, etc. It is used up and is thrown away in microscopic amounts -  this, however, adds up to big amounts over time.

Many people out there are crying "bubble" in gold today, I don't think we are even close to that. Eventually, however, I do think gold and silver will enter a parabolic, mania phase, and that is when silver will really take off, outperforming gold by a big margin. 

There are times throughout history when public euphoria conquers common sense. We've seen this story play out many times before - the Nasdaq Tech bubble, the housing bubble, etc. Although, I am hesitant to compare gold and silver to those bubbles, because I feel there are plenty of
reasons for gold/silver to rise tremendously in price over the next 5 or so years, I DO believe that one day we will see the bubble of all bubbles in the precious metals, especially silver.

What is the Tulip Bulb Mania?

The Tulip mania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed. At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman, according to Wikipedia. Here is a chart below: 

A Chart of the Tulip Bulb's Rise and Fall in Price

This was written about in the classic investing book, Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay.According to Mackay, at one point 12 acres of land were offered for a Semper augustus bulb. We are talking millions of dollars in today's money for a stupid tulip bulb!

Why Silver?

Unlike the tulip bulb, which was seen as a luxury and commodity with no other value, silver has tremendous value. To put it simply,  silver supply is dwindling and silver demand is increasing every year. The Silver Institute says that there is much less silver to buy than there is gold today - silver is technically rarer than gold! One reason for this is those industrial uses mentioned above.

According to the CPM group, in 2007 there was roughly 50 million ounces of government silver inventories. In 2000, that number was close to 150 million, and in 1990 it was well over 200 million.

Stockpiles of silver are virtually non-existent.

Did I mention that the historic gold to silver ratio is 16:1? A current gold price of $1600 would put silver at $100 an ounce, well above its current $30 price.

So you see, there are real reasons for silver to rise in price. In this way, the coming silver boom I foresee is not too shocking.

How High Can Silver Go?

How high is the ceiling for silver? It's pretty darn high if you ask me. Since it is such a small market all it would take is 2-3 large buyers to see a major uptick in price.


With gold at $3000 an ounce, which I feel is very reasonable in upcoming years, a natural 16:1 ratio would put silver at $480 an ounce - that is more than 15 times the current price!

Mike Maloney, author of Guide to Investing in Gold and Silver: "For more than a century, the golds/silver ratio has been further out of whack than anything I have ever heard of..."

"You can bet that when a run on silver happens, the ratio will come screaming back, and I'm pretty confident that it will snap back past the historical average of 12 to 1...I believe it may even go so far as to meet or exceed the price of gold."

In this YouTube Video, Maloney predicts $1,500 silver!

There you have it.



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