The bears make a lot of noise whenever gold and silver prices slip, but they are strangely silent about the big picture.

September 19, 2011 – The bears make a lot of noise whenever gold and silver prices slip, but they are strangely silent about the big picture. They just can’t bring themselves to look at the precious metals as money.

Suppose you want to put some cash away for a rainy day. Your bank will pay you a fraction of one percent interest to put it there, and you could do a little better than that with a CD. But a year later you would find that the money in your account would buy less than it would have the day you put it in.

Now suppose instead you exchange your dollars for real money and tucked it in a safe deposit box. Sure you would have to pay the bank to hold it for you and not the other way around, but all that matters is how much your savings would be worth today.

In just the last six months gold has gained 26% and silver 14%, despite the recent ups and downs. And those figures climb to 41% and 92% respectively over the past year. Very impressive, but perhaps a more meaningful way to look at it would be to see what the prices would have to be next spring in order to realize a more conservative return.

Nobody would argue that a 10% return on savings these days would be extraordinary. To realize that gold would have to stay above $1,560 per ounce and silver $36.60. From where I stand that’s a pretty safe bet no matter what happens. Even if gold dropped to $1,700 and stayed flat for a full six months it would represent a 20% yearly return.

But are those really earnings? Perhaps not, in terms of purchasing power. That is what gold and silver are meant to preserve, not create. Relative to cash, however, there is no contest. One thousand dollars deposited in a bank a year ago at a generous 2.5% interest, would have grown to $1,025. The same amount invested in gold and cashed it in today would leave you with over $1,400 in green backs. And with silver you would now have more than $1,900.

Of course converting gold and silver to cash defeats their purpose – after all who needs more of a rapidly deteriorating asset anyway? The point is that gold and silver investments have enormous headroom and it would take unimaginable setbacks to seriously reduce their long-term returns.

That isn’t about to happen any time soon.

Shannon King

Senior Staff Writer –

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