The recent price performance in silver and a huge jump in silver coin sales and in silver ETFs has led to renewed interest in poor man’s gold.

Once upon a time, the Chinese government forbade ownership of all precious metals.

But now, the ban has been lifted. In fact, China just introduced silver bars for investment. And now, state-run China Central Television (CCTV) is running a campaign encouraging the population to invest in silver.

That means there are over a billion potential new silver investors hitting the market. This is especially significant when you consider the average savings rate in China is 30 to 40%.

But the flood of new Chinese silver investors isn’t the only factor driving up silver prices. The increased use of silver in everything from solar cell technology to medicine is pushing up prices as well.

Read on to discover exactly why silver will make savvy investors rich in the year ahead… and find out the one stock to buy now to take your portfolio to new highs.

Chinese Demand for Silver

Take a second to think how much of an impact this will have on the silver market – the sheer amount of people, and at such a high rate of savings.

Then you factor in Chinese demand for things silver is need to make – cell phones, computer, batteries, silverware and jewelry. China’s silver consumption already accounts for 70% of the global total of industrial use, and its middle class isn’t even close to reaching its spending potential.

What’s more, those aren’t the only reasons analysts are predicting silver prices can reach as high as $100 this year and $250 by 2015.

This free report outlines all the reasons silver is going to continue its ride to another record. It also gives a handful of ways to invest in silver.

Demoting the Silver-Gold Adage

China’s impact on the silver market isn’t the only thing catching the attention of silver analysts. The silver-gold ratio tells a compelling story about the price of silver. Put simply, the ratio means how many ounces of silver it takes to buy one ounce of gold. Historically, that ratio has been about 15-to-1. Right now, that ratio is hovering around 59-to-1.

For silver to ‘correct’ by returning to its long term silver/gold ratio of about 15, gold at $1,000 means silver should be priced at $66 already.

You’d be hard pressed to find anyone who believes that 59-to-1 will hold up much longer because it basically means silver is cheap compared to gold, which opens the door for investors to come in at a good price, such as China. All of China.

More Pressure on Silver Prices

As the global economy expands its size and reach… as technology advances… and as more ways to buy silver becomes available… as silver supplies have dwindled… more factors began affecting the price of silver more exclusively – for better or worse. Some are:

Silver’s Industrial Uses: For decades, silver has been more than a collector’s item. It has dozens of uses outside the storage vault. It’s used to make currency, jewelry and silverware. Silver is used to produce highly reflective, architectural mirrors. It’s heavily used in the medical field as an antimicrobial – a killer of some bacteria, algae, fungi and viruses. In the labs, silver is used in photographic films and as a catalyst in chemical reactions. And more applications are arriving soon, including using silver in photovoltaic cells in solar-power technology and in rechargeable silver-zinc batteries. In fact, silver’s use for industry has gone from 35% of total annual production ten years ago to more than 50% today. One source claims that figure is actually 90%.
Silver Supply/Demand: Supplies of available silver have dropped by 86% in the past two years. Commodities research firm CPM Group says the current amount of above ground refined silver has fallen from 2.2 billion ounces in 1990 to less than 1 billion today. At the same time that supply is falling, demand is rising… especially industrial demand. The pressure on silver prices will get even stronger as individual investment demand (including the whole Chinese market) goes up.
Silver Market Size: Silver is a less-active and lower-volume market than gold, which means that purchases even by individual investors can make an impact on silver prices. Better said, 100 silvers buyers purchasing the same amount as 100 gold buyers will have a bigger impact on the market. Think how much prices can spike when millions of Chinese investors flood the market with silver purchases. Now, combine that with the global return of industrial silver demand.
Silver Price Projections

Money Morning’s Martin Hutchinson believes silver and gold will continue climbing into 2011 and beyond. If enough investor momentum gains – and if China’s push for individual silver investment intensifies – he believes silver could peak past $100 either this year or next.

But, that’s just the beginning. Silver could top out at $250/oz. in the next five years as global mine production crawls in the face of increasing consumer and industrial demand. That’s an increase of over 1,150%.

Bear in mind that silver prices have been moving faster than gold. So those who want to invest in silver better pull the trigger soon, or watch silver’s price explode from the sidelines.

The Best Way to Invest in Silver

Like investing in gold, the most popular ways to invest in silver is ETFs, mining company shares and bullion/coins.

As far as ETFs go, silver investors might want to check out ETFS Silver Trust (NYSE: SIVR). The ETF can be bought and sold just like any stock, and seeks to reflect the value and performance of the price of silver bullion, minus the Trust’s operating expenses. The ETF is backed by physical silver bullion held by HSBC in London.

But, to really leverage the price of silver, take a look at Vancouver-based Silver Wheaton Corp. (NYSE: SLW).

Silver Wheaton which is perhaps the heaviest hitter in the global silver-mining business. It gets its silver from all corners of the world, from the Aurcana mine in Mexico to the Zinkgruvan mine in Sweden. As silver’s price shot up 56% in 2009, Silver Wheaton’s stock more than doubled that with a 124% gain. And in that span, the company acquired competitor Silverstone Resources Corp. and entered into several long-term agreements with Goldcorp and other major miners in which Silver Wheaton will acquire silver mined by them. Look for Silver Wheaton to skyrocket as silver prices rise.

Editor’s Note: Silver isn’t the only commodity in high demand in China. Demand for a substance used in everything from medicines to nuclear bombs already tops production by 16 times… This supply/demand mismatch has doubled the price of this substance in just one year. But the boom has barely even started. Discover the best way to play it (it’s not by buying the substance itself) before demand skyrockets even more.

Money Morning:
Your Guide to Financial Freedom

The bottom line is this: With U.S. influence slipping, and the dollar declining as well, investors who think too narrowly about this transformation will face years of meager returns. But those who embrace this new global reality can make themselves very wealthy.

Silver More Important than Ever

Momentarily leaving aside what we know from the work of GATA and Ted Butler – namely that both gold and silver price discovery is predominately controlled by a few dominant (bullion bank) sellers – perhaps the most volatile in the metals markets is silver.

Despite owing much of its demand to industrial uses and photographic development, is still a prime target for anti-inflation investors.  As gold treads toward new heights and pushes the 70:1 ratio with gold’s price, investors are looking to trade in their gold holdings for silver, realizing it has yet to reach its maximum price.

Of course, this is easily reflected in daily volume and price changes, with silver rising and falling at different times and degrees than that of gold.  However, even more recently as gold as pushed upward, silver has followed, and in many times, silver has risen on days when gold has taken a sharp dip.

Embrace Volatility with Purchases

Even as silver heads to new highs, there is still no sign that investors should even contemplate an exit.  With silver at a 70:1 ratio with gold, one should expect at least a slight pullback in gold or an advance in silver prices, though gold appears to be stagnating temporarily while silver plays catch up.  The catch up advance in silver prices will take some time, and it will ultimately come in the form of ten steps up, eight back, ten steps up, eight back.

This extreme volatility may be shunned upon by investors, most of whom are looking for a store of value, but what it actually does is allow for even more entry points as silver bottoms out on the silver to gold ratio.  Few times has silver touched the 70:1 value against gold, and every time it did, the price of silver rose significantly while gold stagnated.  If you believe history is an excellent indicator, and it should be, then there is no excuse not to be loading up on silver at today’s relatively low prices to gold.

Start Shopping at $17

Physical silver’s sister security is the exchange-traded fund SLV, which may not have all the same benefits of physical silver, but does give an accurate representation of what silver investors are doing in the other physical and futures markets.  At $17 on the exchange-traded fund, investors are buying hand over fist, whereas less than three months ago they were selling at that price.  Knowing this, we can establish that the short term floor on silver is at $17 on SLV, which works out to about $17.25 on the spot metals markets or roughly $18 in the physical markets.

The Perfect Storm

With gold on a tear through $1250 and silver breaching the bottom of the historical silver to gold ratio, there has never been a better time to buy.   Silver’s volatility should smooth as the metal closes the gap with gold with higher prices.

Recent Volatility in Metals Nothing to Fear

Recently, the metals markets have become far more volatile, often rising and falling upwards of three to four percentage points in just one day.  That volatility, however, is nothing you should fear.  In fact, it’s mostly due to the extreme attention being paid to the metals markets.

Dr. Jeffrey Lewis

Silver is a monetary and industrial asset available to practically anyone.

If you understand that, then you will probably understand the rest of this site as well. If your job depends on not understanding that, then you won’t understand it.

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

What If the U.S. Dollar Crashes Overnight?

One of the questions that we’ve received last week was about the possible non-confirmation between gold at new highs and both silver and stocks lagging well beneath their old highs. The question is if such a non-confirmation becomes a source of worry at some point, since these three sectors traditionally move together.

The answer is the one that every economist likes to give when being asked just about any question – it depends. In the long run fundamentals drive prices of assets and the precious metal market is not an exception from this rule. As long as fundamentals are in place, the bull market in the precious metals will continue. There are several signs (as featured in the “Top or Not?” list in the Tools section on our website) that will tell us that this is indeed the ultimate top – we don’t see them yet.

The declining general stock market may continue to put a negative pressure for mining stocks and (especially) silver until we get to the final stage of the bull market (actually, we expect high rates of return even from stocks that don’t mine gold nor silver, but that are just named “golden something” or “silver something”.) In case of silver, we might also see sharply higher values in case of a problem with delivery of silver on COMEX. However, until either of them takes place, we might continue too see underperformance of these two parts of the precious metals market if the world stock indices move lower.

In case of silver, we don’t think it would invalidate its final rally or make it anything less than breathtaking, but it could certainly delay it. In a way, lower values of the main stock indices are good for long term silver investors, because they would allow to buy as much silver as possible at relatively low prices before the silver market takes off.

As for the mining stocks, the situation is quite different, as they are not that likely to outperform metals during the final stage of the rally. However, in case of gold and silver stocks, the history suggests that the positive correlation with the general stock market is likely to wear off sooner or later. Please note that from 2001 to 2003 gold stocks managed not only to rise, but also to outperform gold along with declining stock market.

Therefore, the disproportion between gold’s performance and the one of silver and mining stocks does not change the fundamental situation for the whole precious metals market, and consequently, does not make us concerned, as there is a good explanation behind it in the form of declining stock market.

There’s one more thing that we would like to comment on in this essay, as we’ve been also asked about the final stage of the rally, and what would be the use of the having massive gains on one’s mining stocks, if they would be priced in the U.S. Dollar that could be worthless at that time. That is true that the final stage of the bull market in the precious metals market could correspond to a financial instability to say politely, but fortunately we are in this market to maximize our chances of even increasing our wealth during these difficult times.

Let’s split the above question into two separate matters. The first one is “how do I know that I won’t lose everything I have if the U.S. Dollar collapses overnight” and the second one would be about the gains in mining stocks when the U.S. Dollar is worthless.

The first question is all about owning physical metals. If you own physical metals, keep them in a safe place, or even better it is spread among several “safe places”, it seems that you could sleep well at night. If the USD collapsed overnight, the increase in the value of the precious metals holdings would be so massive that just a 10% in gold/silver should more than make up for the losses in your “paper wealth.” So, by following the rules listed in the Key Principles section you would have about 20%-25% of your portfolio in physical metals and an overnight dollar collapse could in fact massively increase your wealth. Therefore, you’re protected at all times.

The second question is about protecting one’s profits in mining stocks or from other speculative vehicles. Generally, it does not need to overly concern you either, because – as mentioned above – mining stocks are not likely to outperform metals during the final stage of the bull market. Therefore, we will strive to detect when it is not likely that mining stocks’ outperformance will not return soon, and we will suggest switching directly to metals, just like we are now suggesting owning gold instead of silver and mining stocks (of course this is because of the short-term uncertainty regarding the last two markets, not because we believe that the bull market is close to being over.)

This is not recommended for most Investors, because could decrease one’s profitability, but if you are particularly afraid that you could lose your speculative capital because of the death of the U.S. Dollar, you might want to put 10-90% of your profits from each trade (depend on how afraid you are) in mining stocks directly to physical gold or silver. In this way you will be sure that the relative amount of physical metals in your possession is constantly rising, and at the same time the amount of “paper wealth” at risk (here: stocks) decreases. Again, the price here is limiting your exposure to profits from speculation on mining stocks, so it’s a trade-off.

Summing up, the long-term direction in which the precious metals is likely to go is still up, and if you prepare yourself accordingly, you should be able to preserve your wealth, and probably even increase it, even if the current financial system would cease to exist in the current form. Meanwhile it might be a good idea to earn money along the way by trading gold, silver and mining stocks.

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Thank you for reading. Have a great weekend and profitable week!

P. Radomski

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The USD Index and gold both moved slightly in the past few days, while stocks moved relatively higher – does this mark a significant change in the previous trends, or was this just a small pause? In addition to providing you with extensive answer to this question, we discuss gold role as an inflation hedge, and the meaning of the current divergence between gold, silver and mining stocks. We also explain, which part of the precious metals market is currently most appealing to precious metals Traders.