Gold and silver prices surged to new records Tuesday as the dollar weakened against major currencies, continuing a trend that has left Americans scrambling for alternatives to traditional investments such as stocks and money market accounts.
Silver touched $22 an ounce Tuesday, the highest since 1980. Silver has surged 36 percent this year from less than $9 when the financial crisis began in 2008. Gold, which has increased 19 percent in 2010, jumped to $1,313 an ounce, the highest ever recorded.
With stocks in the dumps and government deficits spiraling, Americans are increasingly turning their attention to silver and other precious metals.
The high price of gold, which has also more than doubled in price in the past two years, has prompted investors to load up on cheaper silver. Silver has gained 21 percent in price versus gold this year.
"Some people are worried about the currency debasement and have done some research about the fundamentals of silver and fundamentals of gold and silver looks like a better deal," said David Morgan of the Morgan Report.
Silver's rise can also be traced to its industrial uses in products such as jewelry, mobile phone components and batteries.
But silver also has a checkered history that likely has faded from the minds of today's investors. In 1979 and 1980, silver prices skyrocketed to a historic high of $50 an ounce after billionaire investors Nelson and William Hunt tried to corner the market -- buying up all the silver they could get their hands on. The scheme failed, silver prices collapsed, and the brothers lost their billion-dollar fortune. They were later fined $10 million each, and banned from trading in U.S. commodities market.
Silver's ascent this time around has been much more gradual. "It's something that has been evolving for quite a few years," says David H. Smith, contributor to the natural resources investment guide The Morgan Report. "In the 80s we had a bull market that sent silver to $50 an ounce and then it went into a bear market after collapse. We moved into an accumulation phase and since that time silver and gold has been rising sharply."
Low interest rates are another factor in the rush to precious metals, experts say. The average money market account nationwide pays just .69 percent interest, according to Bankrate.com. That's less than 1 percent annually. Rates have been kept low by the Federal Reserve for the past two years in an effort to stimulate the economy.
For consumers, "putting money in the bank is no different from burying it in the ground. The interest rate is basically the same: It's zero. I think people put money in the bank just so they can write checks, there's no financial benefit to doing it," says Peter Schiff, president of Euro Pacific Precious Metals.
Gold Versus Silver: The Ratio
Can the gains in precious metals continue? "I think silver has gotten ahead of itself," says Morgan. "It flew up very quickly and I don't care what the commodity is, if it moves that big of a percentage that quickly it's almost always due a correction."
Most personal finance experts advise only a small bet in gold and silver -- at most 5 percent to 10 percent of a portfolio.
"People get so excited they have more money invested in silver than they should for a sleeping level," says Smith. "Silver is known as the restless metal because it goes up and down."
Some experts see silver as the more attractive option because it's currently priced at a ratio of 62 compared with gold. The long-term ratio is about 15, which to some indicates that silver could rise much more in comparison with gold.
Individuals can buy gold and silver in ingots or coins from dealers or the U.S. Mint. Expect to pay a small premium over the current spot price. Another way to invest is shares of mining companies and mutual funds that specialize in precious metals.