On the surface, investing in physical precious metals is very easy:
You buy them when they are cheap. You sell them when they are high. Nothing to it, right? Wrong.
Unlike many conventional investments, gold and silver have absolutely INSANE volatility. It is for this reason, if you want to invest in precious metals, you NEED an iron stomach. What can seem like a cheap price might actually be a high price, and vice versa.
This volatility, I believe is one of the reason many pundits decry physical precious metals as a speculative investment, unsuitable for the masses.
Are precious metals a bad investment? Let's see.
If you look at one of the best performing NADAQ stocks of the past 10 year chart (Apple, NASDAQ:AAPL), you can see that in a 10 year period from Nov 2001 to Nov 2011, it yielded a 3500% return, rarely testing it's long term trendlines (300, 200, and 80 day moving averages). If you purchased shares of Apple in a dollar cost average fashion from 2001 onward, you would have yielded a very handsome return, and even with the market crash in 2008, today you would have been in in very good shape.
http://www.google.com//finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1322261093388&chddm=993531&chls=IntervalBasedLine&q=NASDAQ:AAPL&ntsp=0
Silver, on the other hand, if you dollar cost average during the same time frame, while you still would have been in good shape - you would have had to endure several massive run-ups and crashes in spot price, as well as an actual shortage and a near inability to take physical possession during the big 2008 market crash.
The return on silver itself over those same 10 years, while an impressive 670% still wasn't quite as hot as shares in Apple, significantly outperformed the Dow Jones Industrial Average (13%), NASDAQ (28%), S&P500 (28%), and TSX (54%), meaning over the past 10 years, silver significantly outperformed the majority of all North American stocks.
http://www.24hgold.com/english/interactive_chart.aspx?codecom=SILVER&chgecom=ChgeDollarCan&valecom=valedollarcan
http://www.google.com/finance?q=INDEXNASDAQ%3A.IXIC
http://www.google.com/finance?q=INDEXNASDAQ%3A.IXIC
http://www.google.com/finance?q=TSE:OSPTX
http://www.google.com/finance?q=TSE:INDEXSP:.INX
http://www.google.com/finance?q=TSE:.DJI
Yes - silver does not pay a dividend, but not many stocks in a fairly consistent 1-2 year cycle have yielded a trough to peak return of 150-170%.
I remember investing in RRSP's my "financial advisor" telling me:
The "Rule of 72" says that you take the interest rate (assuming that it's compounded annually) and divide 72 by it and that's how long it would take for you to double your "money."
With good mutual funds I invested in returning 9-10%, I was looking at 8 years to double my "money." Conversely, if I had instead invested in silver AT THE RIGHT TIME, I could have doubled my "money" in less than 2 years. True, there are really good traders who can double their money in a few minutes - but I'm not a very good trader - I'm a full time "professional" working a 9-5 job on salary.
That being the case, through my brief journey of investing in physical metals (both gold and silver), I have proven that I was not good enough to buy silver AT THE RIGHT TIME. In fact, I both bought and sold a lot of silver and gold at WRONG times. I will caution that while over a 1-2 year cycle, silver (and to a lesser extent, gold) sees spectacular price increases, it as the same time has a penchant for daily to weekly 20-30% price corrections, the likes of which I have found (and I believe is deliberately orchestrated) to terrify investors with weaker stomachs.
It is for this reason that investing in physical precious metals you absolutely NEED an iron stomach. In April 2011, I saw one of those massive price corrections, and seeing silver I bought for $49 go to $33, if I had a weaker stomach, I would have sold all my silver the day after and never looked back.
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