Silver and Gold, Who has the Fever?

12/6/10

By Jerry R. Carter

The apocalypse is upon us.  Mad Max is on patrol.  He is on the hunt for escaped criminal minds who pillage small towns searching for fuel at the end of the oil age. (Kennedy Miller Productions, 1979)  Depending on who you ask, the world is far away from this scenario.  If Max is patrolling the streets, he is looking for the inflation monster that is jumping out of back alley brokerage houses screaming, “Inflation!”  Argh!  The inflation monster frightens and torments everyone with fiat currency!

Hard assets, commodities and real estate are all hedges against inflation.  Okay, the real estate has been a problem on the residential side but the farmland values are a different story.  Dan Piller, a reporter with the Des Moines Register (Iowa), wrote of a report from the Federal Reserve Bank of Chicago that surveys 227 bankers on farmland values.  Iowa farmland is up 13% since last year at this time.  The average price for one acre of farmland across Iowa is $4,518.  This is nearing the record high of $5,711 per acre the state reached in 1979, inflation adjusted of course.  Bullish land investors still have a way to go before this becomes out of control in comparison.

http://www.desmoinesregister.com/article/20101205/BUSINESS01/12050343/Why-farmland-is-skyrocketing

Now, the moment everyone has been waiting for, silver and gold.  Late night television is littered with fast talking ringmasters calling for your gold.  Shopping malls have entire storefronts buying gold.  Market pundits are throwing out ratios of silver vs. gold and how many pieces buy a suit and whatever else paints a visual picture to the public.  Few investors may remember the 1980’s attempt to corner the silver market by the Hunt Brothers of Texas.  The Hunt Brothers had a plan to protect their wealth.  They probably had a little bit of the “metal fever” to boot.  The human psyche only provides tunnel vision when commodity markets are red-hot.  Hardly anyone sees a bubble coming.

This is not a call to take risk off the table.  Money has to be invested to earn a return.  Where better to put it than proven hard assets?  The goal now is to protect assets.  If gold and land is a hedge against inflation, what hedge does an investor have for their financial portfolio?  Puts options on the S&P, diversification of holdings?  Investors want to play the game and many turn to the silver market.  Silver is the “poor man’s gold.”  Really, it should be likened more to a $10 stock.  How much can an investor lose, silver is only $30 per ounce.  Surely it is different this time.      

Disclosure: Unless listed following this disclosure, DavidsCreek, LLC or Jerry R. Carter, does not have a financial interest in any equities, equity options, futures, or futures options recommended or described herein. All employees and agents will not initiate positions until 24 hours after publication before acting on recommendations.  Copyright 2010 all rights reserved.  All data and statements are reasonably believed to be reliable and accurate; however DavidsCreek, LLC or Jerry R. Carter, does not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. There is a risk of loss trading equities, equities options, futures and futures options.  Past performance is not a guarantee of future results.