Sunday, January 2, 2011

Real Estate vs Gold/Silver/Mining Stocks

As the year came to an end, I made a whole series of posts about the topic of Silver. I have also said that the road ahead is going to be rocky with some very violent swings up and down.

So I was asked by a colleague... do I think Silver will still be a far better investment in 2011 than real estate?

2011 is the start of the boomer retirement wave. Every single day this year, 1,000 Canadian boomers and 10,000 American boomers will be retiring.

That's each and every day.

And statistics show that 70% of Boomers do not have adequate funds set aside for retirement. Their plan? Sell their massively inflated housing asset, downsize and live off the difference.

In that sort of environment, can the forecast for Real Estate be anything but bearish?

Meanwhile the United States government is rapidly approaching the debt limit. By early March the Americans will be forced to once again extend the $14.294 trillion debt limit.

In 2011 the two key traditional drivers of economic growth and prosperity, employment and housing, will likely continue deteriorating (US employment ended the year over 9%). In other words, all growth in 2011 will be predicated upon very much more of the same as in 2010: transfer payments and government stimulus (not to mention inventory accumulation) especially in the form of incremental debt to offset consumer deleveraging.

In that sort of environment, can the forecast for rising precious metals be anything but bullish?

So, of course, the answer to my colleague's silver vs real estate question is, Yes... investing in silver is still the way to go.

With that in mind, let's start with a comparison to start 2011 and check back on it over the course of the year.

As put together by Realtor Larry Yatkowsky, here is the chart for the Vancouver Real Estate Average price for year end 2010:

The average detached home sales price is $1,046,348.

Let's pretend that one investors buys a house for $1,046,348 (we won't factor in taxes, commissions, etc).

Another investor purchases $1,046,348 of physical gold at the year end closing price of $1,421 per ounce. He obtained 736.346235 ounces of physical gold (we won't factor in buyer's premium on gold).

Another investor purchases $1,046,348 of physical silver at the year end closing price of $30.91 per ounce. He obtained 33,851.4397 ounces of physical silver (we won't factor in buyer's premium on silver).

Finally let's also select three Canadian mining stocks of the basket I follow.

Let's buy $1,046,348 of First Majestic Silver (FR) at the year end closing price of $14.40 per share. That investor obtains 72,663.0556 shares of FR (we won't factor is the commission fee).

Another investor buys $1,046,348 of Almaden Minerals Ltd (AMM) at $4.73 per share. He obtains 221,215.222 shares of AMM.

Finally our last investor buys $1,046,348 of ECU Mining Inc (ECU) at #1.34 per share. he obtains 780,856.716 shares of ECU.

Real Estate, Physical Gold/Silver or Gold/Silver Mining stocks... which will do better in 2011?

it's a simplified comparison, but we'll check back periodically throughout the year to compare them.



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