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Saving in Silver – A Lesson For the Young Ones
June 13, 2011 by prospectingjournal · Leave a Comment
COMMENTARY—Prospectingjournal.com— It’s been well over a month since silver flirted with the nominal record threshold price of $50 (back in late April), before outlying factors slammed the metal back to reality. Today, as of writing this piece, the price dipped back below the $35 mark for the first time since mid-May. For those who joined the party late, and bought-in for the first time when silver was above $40, I feel for you. But for the rest of us who were leading the charge back since silver was a super bargain valued in the mid teens (or for the older generations who got in even earlier in the single digit range), this slide represents no panic. For some of us, silver isn’t just an investment, it’s a full on savings plan that outperforms those savings accounts your moms and dads started for you when you were a kid, by a substantial margin.
Last Christmas, I gave my nephews each a one ounce silver coin (along with age appropriate toys, so I could remain the “cool” uncle). When I bought them, they were $26 a piece. My instruction for their parents was to educate the kids on the value of saving with silver. At the rate things were going, it was my belief that the coin would be worth double the purchase value by the following Christmas. By late April, it almost looked like that prediction was going to be proven true in 1/3 of the time. Alas, the factors that manipulated the price of silver back to where it is today were put into play, and we are where we are.
But the lesson still holds true: silver holds or gains value, your savings account does not. Let’s say instead of buying them silver, I opened a “High Interest” eSavings savings account with RBC at a current rate of 1.25%. By next Christmas, that $26 would be worth a whopping $26.33. Even if I instead went with ING Direct and their rate of 1.5%, the $26 would be worth $26.39. Instead, if the price even just stays put for the next 6 months, without realizing the true value of silver, my little lesson for them would show a return of closer to 30% over the year. Savings account, my foot!
Now, I know that there are plenty of other places to put our money, and lots more lessons to teach the next generations, but this one is a simple one. First off, the bank puts in place fees to more or less protect you from your own spendthrift ways, making each transaction cost you along the way, should you desire to pull out any of that initial $26. Automatically, you’re going to shave $1.50, just for taking out your own money, so we’ve got a new value of $24.50. Sure, that would be a lesson to teach in and of itself, but it isn’t as fun as making a kid feel a little richer. Secondly, exchanging paper fiat money into a hard physical metal and back again is something you have to physically do yourself. Sure, the exchange or broker will take their cut, but it won’t be as bad as the big bad banks. Selling a $36 value ounce of silver for $35 hurts a lot less than the above scenario.
A lot of times, gold bugs and silver bugs are laughed at in the mainstream media, and unfairly so. Countless seniors these days are finding their savings to not be enough to make ends meet. Decades of steady employment and savings have proven to have failed. Trying to outrace inflation is a difficult action, and many can’t keep up. They’ve been told to sink into mutual funds or worse… savings bonds. Metals automatically keep up with inflation, due to their demand from day-to-day living. A bank won’t encourage you to make this choice, because by owning a metal, your money becomes less mobile, less valuable and less accessible to them.
Silver may be down to $35 right now, but barring some miraculous comeback by the US economy launching the world into a sustainable boom cycle, coupled with major injections into the world’s silver supply, and a drastic crash in consumer demand for silver-supplied electronics, I don’t think it’ll ever fall below the $26 I paid in December. When I hear “crash” in silver, I see a “buy” signal. You should too. There’s plenty of time to teach more lessons between now and Christmas.
G. Joel Chury
Editor in Chief
ProspectingJournal.com
