When Do I Sell My Silver?

Larry LaBorde
Mar 18, 2008

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 and 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 says when the cost of a median priced single family home in the US sells for 500 oz of silver (or 40 oz of gold) he believes it will be time to exit the silver market. Of course he says he will not go back into dollars but most likely trade his silver for undervalued income producing real estate. So in other words he believes silver is still VERY undervalued 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/oz in today's money for 500 oz of silver to purchase it. So he is looking for another x 20 rise in silver value before the top is reached ($21 x 20 = $420/oz). Of course do not write $420/oz on the wall as your exit point because by the time we get there in the next 5 to 15 years that amount of federal reserve notes will not mean the same thing. 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 oz of silver or 1:1. After the 1980 silver price spike for the next 25 years the average price of a bbl of oil was just under 4.5 oz of silver (with a high of 2 to a low of 10). Today it is around 5 oz of silver for one bbl of oil. In the past 3 years the extremes have been a high of 4 to a low of 9 oz of silver per bbl of oil. Even though there has been a lot of volatility in both the oil and silver markets the average has remained around 4 to 6 oz of silver per bbl of oil. So perhaps the next drop to par with oil or 1:1 it may be time to sell your silver and trade for oil. Currently that would represent an increase of 5 times its current value.

Another consideration is the gold / silver ratio. The gold / silver ratio has been between 12 and 17 throughout most of recorded history. Only in my life time has the ratio gotten so out of balance. The high was reached in 1991 when it went up to 91 (1 oz of gold = 91 oz of silver). Since that time it has been trending downward. Currently the ratio is around 48:1 (1 oz of gold = 48 oz 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 overshoot it and drop down somewhere below 10 before it settles back to 15 or so. Therefore a ratio of 10:1 would put silver at $102.50/oz in today's dollars. A ratio of 15:1 would set silvers current price at $68/oz.

Another value would be the dow jones industrial average priced in oz of silver. The low for the DJIA / silver was 18:1 in 1980 (18 oz of silver could buy the DJIA). During the 2000 stock market peak the DJIA / silver was 2,500:1 (yep, it took 2,500 oz 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/oz (or 30 times higher). So maybe you should consider selling when the DJIA / silver ratio gets near 20:1.

So whether it is 20 times, 5 times or 30 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.

Larry LaBorde,
Silver Trading Company

Larry lives in the South with his wife Puddy and Gracie the wonder dog. He sells precious metals at the Silver Trading Company and can be contacted at llabord@aol.com. You can view his website at www.silvertrading.net.

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