People are always asking me, "When should I sell my silver?" Well, that question is much easier to ask, than to answer. I often times tell them, "Whenever the government starts acting responsibly and not only balances the budget, but finally decides that it has grown too fat and announces they are going on a fiscal diet."
Many people want an actual dollar target to write down, so that they will know exactly when to get out. Well, since the dollar is shrinking that target number keeps getting bigger. That is exactly the problem with a shrinking yardstick. It is hard to measure something today, for it to have any meaning in the future. So, what can we use instead of dollars to measure when to sell our silver? Because, make no mistake, there will be a time to sell sometime in the future.
Robert Kiyosaki, author of "Rich Dad, Poor Dad," recently stated that he has a large position in silver and plans to exit when his target is met. He also stated that when the cost of a median priced single family home in the U.S. sells for 500 ounces of silver (or 40 ounces of gold), it will be time to exit the silver market. Of course, Mr. Kiyosaki stated that he will not go back into dollars, but will most likely trade his silver for under-valued, income-producing real estate. So, in other words, he believes silver is still very under-valued at this point. As a matter of fact, since the average existing single family home is now $218,000, it would take a silver price of $436 an ounce in today's money for 500 ounces of silver to purchase it. So, Mr. Kiyosaki is waiting to sell his silver, when the price of an ounce of silver increases by twenty times its value from now ($21 an ounce times 20 equals $420 an ounce). Of course, do not write $420 an ounce on the wall as your exit point, because by the time we get there in the next five to fifteen years, the value of the Federal Reserve Notes (FRNs) will not be the same. You just have to stop thinking in terms of FRNs or dollars, and start thinking in terms of value or what your silver will purchase.
Perhaps, you may want to think in terms of how much oil your silver will purchase. In 1980, the average price of a single barrel of oil was equal to a single ounce of silver or 1:1. After the 1980 silver price spike for the next 25 years, the average price of a barrel of oil was just under 4.5 ounces of silver (with a high of two to a low of ten). Today, it is around five ounces of silver for one barrel of oil. In the past three years, the extremes have been a high of four to a low of nine ounces of silver per barrel of oil. Even though there has been a lot of volatility in both the oil and silver markets, the average has remained around four to six ounces of silver per barrel of oil. So, perhaps the next drop to par with oil, or 1 to 1, it may be time to sell your silver and trade for oil. Currently, that would represent an increase of five times its current value.
Another consideration is the gold to silver ratio. The gold to silver ratio has been between 12 and 17 throughout most of recorded history. Only in my lifetime has the ratio gotten so out of balance. The high was reached in 1991, when it went up to 91 (one ounce of gold equals 91 ounces of silver). Since that time, it has been trending downward. Currently, the ratio is around 48:1 (one ounce of gold equals 48 ounces of silver). It is my opinion that the ratio will come back to its traditional value of 15 or 16. Since it has been so far above its ratio, it may even over-shoot it and drop down somewhere below ten before it settles back to 15, or so. Therefore, a ratio of 10:1 would put silver at $102.50 an ounce in today's dollars. A ratio of 15 to 1 would set silver's current price at $68 an ounce.
Another value would be the Dow Jones Industrial Average (DJIA) priced in ounces of silver. The low for the DJIA per ounce of silver was 18:1 in 1980 (18 ounces of silver could buy the DJIA). During the 2000 stock market peak, the DJIA per ounce of silver was 2,500:1 (yes, it took 2,500 ounces of silver to buy the DJIA). Currently, it is about 570:1. So, if it approached the extreme low of 18:1, then silver would currently have to sell for $665 an ounce (or thirty times higher). So, maybe, you should consider selling when the DJIA to an ounce of silver ratio gets near 20:1.
So, whether it is twenty times, five times or thirty times higher than it is right now, I feel fairly confident telling anyone that the time to sell is not yet! Buy more and hang on for the ride of your life.
If stupidity got us into this mess, then why can't stupidity get us out?
-- Will Rogers.
Larry LaBorde, Silver Trading Company
16 March 2008
