Silver investors got a rude awakening at the start of trading yesterday. Spot prices for the metal tumbled more than 12 percent in early-morning Asian trading on Monday. We’ve heard a lot of excuses for the manic plunge, the most prominent of which is an unexpected surge in silver margin requirements on the Comex that went into effect at the close of trading on Friday.

Regardless of the reason, precious metals investors are jittery. But I’m far from convinced the decade-long bull market in gold and silver is drawing to a close. Here are three reasons why investors should consider staying the course:

1) The fundamentals haven’t changed. Everyone knows gold and silver coins and bars don’t actually do anything. They’re pretty to look at, but they don’t pay dividends and you can’t use them to pay for gas at the local Speedway (not yet anyway). The fact that they don’t do anything, though, is what makes them valuable. Precious metals are finite. The government can’t make more.

The government can, however, print more dollars. As the total number of dollars in circulation increases, the laws of supply and demand kick in. Suddenly, those greenbacks buy less gold and silver. In dollar terms, the “value” of your gold and silver goes up.

Beginning investors understand as much, but they still argue that it’d be better to hold something else, oil perhaps, or real estate. Unfortunately, there are problems inherent in oil and real estate – particularly during periods of rapid inflation.

Think back to 2008 when oil screamed up to record highs around $140 a barrel. Prices for just about everything else started rising, too, and that ultimately ground the global economic engine to a halt. Before long, oil was trading at $40.

How about real estate? If you’ve got enough cash to buy a sprawling apartment complex, I’d recommend doing so. You could get a low-interest loan, steady returns and a fair degree of insulation from inflation (so long as you have the ability to raise your rental rates every year). If you don’t have that kind of cash, though, the costs of entry in the housing market are too high and the market too illiquid to be practical for most investors.

That leaves gold and silver. The market is small, volatile and often stomach-churning, but the barriers to entry are low, and the metals are good at what they do: acting as a store of value during periods of high inflation.

Make no mistake that inflation has arrived, either. Official numbers might peg it shy of 2 percent, but if you calculate inflation the way our government did just 20 years ago, we’re already living with double-digit inflation. That means those dollars you’ve got sitting in your bank account are shrinking … and that’s not good for anyone.

2) 10 percent inflation is just the beginning. The Federal Reserve has made it clear that they’re going to see QE2 through to the bitter end. The massive bond-buying program is slated to end in June, but that’s two more months of massive capital injections. On average, the Fed is pumping $2.5 billion into the economy every day.

$2.5 billion is a vague number that’s hard to digest, but think about the fact that the Federal government nearly shutdown three weeks ago when Congress couldn’t come to an agreement on trimming a mere $39 billion from the 2011 fiscal year budget. QE2 is pumping that much cash into the economy every two weeks!

On top of that, Fed Chairman Ben Bernanke reiterated his promise to keep interest rates near zero for the “foreseeable future.” It’s all fuel for an inflationary fire that’s already smoldering. And the danger is, the Fed won’t be able to put that fire out without rapidly raising interest rates – something that would threaten to topple the U.S. into yet another recession.

3) Corrections are normal. Markets never move in a straight line. Rapid price run-ups are tempered by corrections and consolidation periods. Of course, it’s hard to remember that when you’re watching the net value of your portfolio crumple in a short-term sell-off. Rest assured, though, there are lots of long-term gold and silver bulls out there – even at the world’s biggest investment banks.

“Gold has hit our target of $1500-1600 and the long term target for next few years is $2000-3000,” Merrill Lynch analysts wrote last week (per Barron’s). “Silver should consolidate near-term as it challenges its all-time high – support is in the low $30’s. Longer-term, silver should re-challenge $50 and then target a move toward $80 (an ounce).”

What happens in the near-term is anyone’s guess. Just don’t buy the hype and get out of precious metals altogether. Gold and silver’s brightest days appear to lie ahead.

No love for gold and silver mining stocks

The next boom in gold and silver space might not be in the physical metals themselves but rather in the shares of mining companies. Silver mining stocks are up just 5 to 10 percent on average this year (per Forbes). By comparison, silver bullion’s rallied more than 43 percent since the start of the year and 171 percent over the past 12 months. Gold has trailed silver’s performance, but it’s still clocked gains of 30 percent over the past year.

Once mining companies start turning those price gains into robust earnings, sentiment toward the stocks just might change – even with all the noise and volatility in the spot market. It’s profits, after all, that do the talking. And we’d do well to listen.

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