Mar 5 2010 12:26PM

(This is the second of four articles about Maverick Investing in the Age of Obamanomics)

Food for Thought

In 1980 the historic ‘70s gold bull market finally topped out at $850. After adjusting for inflation, to merely equal what it did in 1980, gold would have to go (only) to $2,300, and silver topped out at $50 in 1980. After adjusting for inflation since then, to merely make a new high, silver would have to go over $125 and gold to $2,300!

Why might the metals go even higher? Most compelling is the fact that the biggest single factor that drives gold and silver is monetary inflation, and that’s already several times greater now than it was during the great gold-and-silver bull market of the ‘70s. In fact, gold and silver have been rising in response to money creation since 2003. Add to that the silver supply/demand phenomenon, and that means far higher prices—unless they repealed the law of supply and demand when I wasn’t looking.

These are just a few of the reasons why ignoring gold or silver will cost you a fortune in missed opportunities. In the worst case, gold is headed towards at least $2,500 an ounce (currently over $1,000, up from $280 so far), and silver is headed for at least $100 (currently more than $17, up from $4). And the best by far is still ahead. Long term gold and silver investors should make as much as ten times their money—and maybe a lot more—before we get a sudden rush of brains to the head and create a sound currency.

All About Gold

Gold can be spun out into a thread that is so thin it is nearly invisible to the naked eye. It can be pounded out into a plate so thin that light can pass through it. It won’t rust or corrode. It will look the same in 1,000 years as it does now.

It bonds well with other metals to form alloys of varying purity, and most of the gold ever mined is still in existence.

No other reality-based myth has been as durable as gold. We’ve all heard of The Golden Boy, The Pot of Gold at the End of the Rainbow, The Golden Touch, The Golden Fleece, The Golden Rule (he who has the gold makes the rules?), The Goose That Laid the Golden Eggs, and the Gold Medal for the winner. Golden engagement and wedding rings are recognized all over the world as a symbol of bonding through marriage. In India and the Middle East, gold is oft en melted down into jewelry and worn for security and a display of wealth.

All About Silver

Silver is the poor man’s gold. Think of gold as large denomination money, and silver as small bills. A one-ounce gold coin is now worth more than $1000, but you can buy a roll of pre-1965, ninety percent silver dimes for under $60 a roll. Partly because it is so much cheaper, the potential buying pool is much larger, and industrial use is so much greater, silver will be more profitable than gold by at least one hundred percent!

Silver is by far the more important industrial metal. There are more than two thousand silver industrial applications, and Uncle Sam has zero stockpiles of silver. It can be polished to be more reflective than any other metal, which is why it is used as backing for glass to make mirrors. It has thousands of essential uses in industry. It is an essential component for the manufacture of all audio and videotape, and all film. But above all, it is routinely accepted as money, especially in India, China, and the Middle East.

And remember, silver went from under $2 to $50 in the last bull market, when the consensus was that there was many times more silver than gold above the ground. Now the ratio is reversed. There is five times more gold above ground than silver.

By Howard Ruff
The Ruff Times

*****

Howard J. Ruff, the legendary author and financial advisor, wrote How to Prosper During the Coming Bad Years in 1978. It is still the biggest-selling financial book in history, with 2.6 million copies in print.

His new book, How to Prosper in the Age of Obamanomics is free when you subscribe to The Ruff Times (www.rufftimes.com), or if you buy the book at your favorite bookstore, you can deduct $10 from the subscription price.

Howard is founder and editor of The Ruff Times financial newsletter. This article is from a recent issue of The Ruff Times. The newsletter deals with a broad spectrum of middle-class financial issues. (You can learn about it at www.rufftimes.com). The Ruff Times has served more than 600,000 subscribers – more than any financial-advisory newsletter in the world.