Is 40 the New 30?

Silver expert David Morgan says you should buy silver whenever it’s selling at $30 per ounce or less. Silver first broke $30 – in the modern era – in the final days of 2010. Since then, it has rarely traded for less than $30. Let’s take a look at how a modest investment plan, investing only when silver was $30 or less, would have paid off thus far.

Brief History

After breaking $30 for the first time on December 29, 2010, silver really took off. It hit a high of $33.49 in February, 2011; $37.87 in March; and then $48.70 in April. Silver then stayed above $35 all the way until October. During this bull run, a lot of people went “all in.” They invested when silver was at its highs, and now they’re licking their wounds. They were attracted by silver’s big gains, starting with breaking $30 in late 2010, and now they’re sour on the precious metal. But a disciplined investment plan would have fared much better.

A Modest Plan

For instance, if you make $48,000 a year, that’s $4,000 per month. Allotting 10% of your income to silver investment would mean you could buy $400 worth of silver each month. Let’s say you started in 2011, after silver broke $30, but made a decision to only invest when silver was at $30 or less. Let’s imagine a $3 mark-up over spot for coinage costs.

On January 4, 2011, the first trading day of the year, silver closed above $30. The following day, however, it was available at $29.21. Let’s say you invested $400 at this price: paying a $3-per-ounce premium, you’d be able to buy 12 one-ounce coins and still have $13.48 left over for the next month.

On February 1, silver was at $28.32. This means you could buy 13 one-ounce coins, including the $13.48 you had left over from the previous month, and you’d have $6.32 going forward into the next month.

However, silver did not dip to $30 again until October 5. In the meantime, it went as high as $48+! It might have been temping to keep buying, as silver just kept going up, but if you were disciplined, your patience would have paid off. On October 5, with silver at $28.69, you could buy $3,206.32 worth of silver – 101 one-ounce coins – and then you’d have $5.63 left over for the next month.

Silver didn’t fall below $30 in November, but it did on December 14. On that day, you could invest $800 plus the $5.63 left over, to acquired 24 one-ounce coins. Finally, you could buy another 13 coins on January 3, 2012, leaving you with $2.65 in cash savings.

Dollar-Cost Averaging

In the end, you’d have 163 one-ounce coins with a $5,197.35 investment. That’s $31.89 per coin, or $28.89 per ounce. Silver closed at $32.26 on January 20, so you’d be ahead of the game. Now compare those results to someone who bought indiscriminately over this same period.

If you bought $400 worth of silver on the first day of each month, regardless of price, you’d end up with 139 ounces of silver and $19.86 in cash; a per-coin average cost of $37.27 – $34.27 per ounce. You’d be down more than 5.8%, whereas the disciplined investor would be up more than 11.6%. That’s a big difference.

Is 40 the New 30?

Clearly, David Morgan’s recommendation has been a good one in retrospect, and we’re likely to see silver under $30 again – but for how long? Going forward, in 2012, $40 may be the new $30… Or if not $40, then perhaps $35. In the year 2012, silver is likely to exceed $50 and even go on to $60. It’s wise to be disciplined, but one can easily take that discipline too far and miss out on a great opportunity. Don’t let this happen!

 

Silver expert David Morgan.