Trading the 401k

I received an email today from one of my close associates. He is considering starting his first silver investment. Like many employees right now, he is looking to cash in his 401k before it’s worth absolutely nothing. He asked me about the cost of silver over the last year, and the volatility of it in comparison to gold. Here’s my reply:

“Pretty upfront. Silver is an industry metal, gold is an investment metal. Since silver is used so much in industry, its price is moved based on the needs of industry. Gold is exclusively an investment metal, so its price moves based on the needs of investors.
“This is why the two metals move somewhat independently of each other in the market. If you are considering the $2,000 from your 401K, you should definitely take into account gold. Over time gold has represented an excellent investment that holds it value in real terms.

In particular, gold appreciates during periods of high inflation and financial instability. As there is limited supply of gold it cannot be printed to finance the deficit spending of governments.
Gold can act as a critical hedge both against inflation and a deflationary financial collapse.
The world is currently facing a crisis of unprecedented proportions. The financial system is fighting for survival and has been temporarily rescued by governments printing unlimited amounts of money, ie bailouts!!
There are 1/10 ounce gold coins available so this would be fairly easy to come by.

“But many experts think silver is the better investment. One of the reasons is that it appears investment in silver is strongly picking up.
“The price of silver would rise if:
* Investment demand grows to the point of impacting industrial demand
* A financial crisis occurred where precious metals became the currency most sought after globally
* Industry demand grows
* Any mining company went out of business
* Any current mine dried up
The price of silver would drop if:
* Industry demand diminishes
* New mining companies appeared
* New mines were discovered

“Notice that investment silver demand can only impact the price of silver in one direction. There are four scenarios for our economy : deflation, mild inflation, big inflation, and hyperinflation. Gold and silver rise in every scenario.
“Industrial impacts can lower the price, and I think that is what has lowered the price from last year’s high of over $20. But it can only drop to a point because there are so MANY industries that make use of silver and new uses are invented every day. Mining companies don’t appear overnight, and new mines are extremely unlikely to be discovered. Especially since silver is not something you mine for. Silver is a byproduct of copper, iron, or some other mining.
“The real point is that yes, silver has been a little up and down over the last two years. But even at $20/ounce, silver looks to be a bargain in the near future. Today, it’s at around $17.98/ounce.

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