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Dubai's Khaleej Times cites GATA in review of silver's prospects

Section: Daily Dispatches

Silver Could Be More Profitable Investment Than Gold

Khaleej Times, Dubai
Saturday, September 9, 2006

From Our Correspondent

JEDDAH, Saudi Arabia -- It is said that every cloud has a silver lining. But when it comes to silver, people usually see that lining more in gold than in the white metal itself.

Not many people think of investment in silver. Even though silver has never been as highly valued as gold in dollar terms, it has the potential to be a lot more profitable than gold in future.

There is a hidden link between gold and silver which, according to an article in a local daily, should cause silver prices to soar more than gold in the next few years.

According to the American Geological Institute, despite fluctuations, gold prices have historically been around 16 times the price of silver because gold is roughly 16 times rarer than silver inside the Earth's crust. That's why almost every major world government in history set the value of silver at 1/16th the price of gold.

Based on this value, if gold costs $650, silver should cost around $41. But it doesn't. Today if silver costs only $11 an ounce. That means right now silver is historically undervalued by close to 300 percent. Right now gold sells at a price 50 to 60 times higher than silver.

In the 19th and 20th centuries major world governments stopped using silver as money. And even though the white metal remained just as precious, people didn't see it as a "valuable" investment anymore.

Many experts believe that under certain market conditions, silver prices rise faster than gold's until silver reaches its historical value of 1/16th the price of gold. It happens almost every time inflation is high, people's faith in the dollar is low, and there's a war or crisis going on. Watch the pattern. If it happens once, you could dismiss it. If it happens three or four times during 100 years of trading,  it's a powerful pattern:

-- 168 percent returns during World War I: In 1914, at the beginning of World War I, silver cost 1/41 the price of gold. By 1919 it was worth 1/15th. And smart investors made 168 percent on silver in just five years.

-- 488 percent returns during World War II: In 1941, when World War II was ripping the world apart, silver was at 1/96 the price of gold. By 1967 it was worth 1/16th. And silver investors made a whopping 488 percent.

-- 433 percent returns during the 1970s oil crisis: In 1975, during America's biggest oil crisis, silver cost 1/40th the price of gold. By 1979 it was worth 1/14th. Again, silver investors made 433 percent in only four years.

All the above time periods had one thing in common: Investors didn't trust paper money. They bought gold and silver to protect and grow their wealth.

That's what's happening right now. As the "war on terror" and Iran crisis go on and as inflation plagues America, silver is the best way to profit. It's still selling at 1/50th the price of gold and has a lot of catching up to do.  As the Wall Street Journal reports, "Silver's recent rise means it could scale new heights."

Catching up to gold prices is just the beginning. That could give you a nice 300 percent gain for starters -- but the potential for silver as an investment over the next few years is even more astounding.

Right now, Americans are uneasy about paper money -- because the dollar isn't buying as much as it used to. Oil, gas, and food prices have all gone up -- without much increase in income levels.

And since the dollar has become the global currency for trade, any effect on the dollar will be felt in precious metals too.

In short, people are losing faith in the dollar. That's what happens in times of inflation. Investors distrust paper money and anything based on it, such as stocks and bonds. They turn instead to hard assets  like land, precious metals, and oil. Right now investors are finding comfort in gold, and for good reason.

"Rising inflation and continued negative real interest rates make a good environment for precious metals," Barron's reports.

Bill Murphy, chairman of GATA, the international watchdog organisation monitoring gold markets, says, "Gold should top $1,000 within two years on its way between $3,000 and $5,000."  

One of Europe's largest equity brokerages, Cheuvreux, says "We could see the gold price spike up much further, possibly to $2,000 an ounce or even higher."

Sure, gold has dipped since its $730 high point in May. But a few corrections are bound to happen along the way. Before gold hit its peak during the last precious metals bull market between 1974 and 1980, it went up and down several times.

Even if gold reaches the lower estimate of $2,000, investors could make up to 200 percent returns, based on gold's current price of $650. But silver could get five times higher returns. During the last silver boom, some Americans made 1,585 percent. Every time gold prices soar, silver prices soar about twice as high.

During the last precious metals bull market, gold went from $35.12 to $306.68 -- a respectable 773 percent. But silver shot up from $1.29 to $21.793 during the same period -- an incredible 1,585 percent.

Silver was already up 114 percent in the past 12 months. Gold, on the other hand, is up only 70 percent. It's taking fewer and fewer ounces of silver to buy one ounce of gold. Silver could likely continue to become more and more precious until it hits 1/16th the price of gold -- its historical value.

If one keeps the low estimate of gold at $2,000, silver's reversion to its historical value could cause it to spike from $11 to $125.This means one can end up making enormous profits. Even if the price of silver does only half that well, one should easily double or triple one's money.

Most invest in silver by purchasing silver bars or coins. This isn't a bad idea. But if one worries about the hassles of shipping, storage, and insurance, then he should buy silver mining stocks. Or buy silver exchange-traded funds -- where the price of the fund is tied directly to price of silver.

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