McGuire, The Silver Bull Market

I suppose the first obvious question to ask the author is: What silver bull market? All year the price of silver has been in an inexorable decline and is less than half its $48 2011 peak; it is now at 2010 levels, although admittedly way above its 2001 low of roughly $4 an ounce. Shayne McGuire, a managing director and head of global research at Teacher Retirement System of Texas, may have mistimed The Silver Bull Market: Investing in the Other Gold (Wiley, 2013). But that doesn’t mean the book’s not worth reading. In fact, now just might be a prime time to read it. Silver prices are notoriously volatile; they can rebound as easily as they can crater.

What is the logic behind owning silver? First, if you like gold, you should like silver as well; silver’s performance is highly correlated to gold’s although its price swings tend to be more intense. Silver, like gold, is an inflation hedge—and a lot cheaper for the investor with a small portfolio to own. Silver is also an industrial play on global technological advancement, although it is less industrial than, say, copper. Moreover, unlike gold, much of it gets used up in industrial production.

McGuire also points out that the gold-silver ratio is out of historical balance. “While gold is 8 times scarcer than silver (in terms of total ounces produced annually), its price is more than 50 times higher than silver’s. For 3,000 years in which the exchange rate could be observed” [now that’s one long chart!] “gold was 9 to 16 times more expensive, making today’s level historically extreme.” (p. 12)

Investors are understandably leery about investing in silver given its rocky history and continuing volatility. Many remember silver’s collapse in 1980, when it lost half its value on a single day. The author quotes a commodity expert as saying that “Silver rushes up the stairs to jump out the window.” (p. 84) But those who can catch it on its way up can reap large profits.

McGuire offers a brief (about 50-page) history of silver in the United States and what it means for the metal’s future and closes his book with advice on how to invest in silver, including coins and silver mining stocks.