Silver – The Place To Be

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In the last edition of Equedia Weekly, we talked about how the US government printed and borrowed another trillion dollars in less than six months right under our noses (see The Human Metal). As the economy slowly moves towards further recovery, you can bet this number will climb – and along with it, gold.

In the long run, gold should hold its value and continue a slow and steady climb. But short term traders have lots to worry about. Selloff in the summer, rise in interest rates, and positive job reports can all spur a round of profit taking, pushing gold lower. But only in the short term.

The technicals of gold remain strong and according to Michael Lewis, the head of commodities research at Deutsche Bank AG,  gold may reach $1,700 in the next year, partly on demand from Asian central banks and surging investment in exchange-traded funds.

And if gold hits anywhere near that number, you can bet that gold miners and explorers will surge along with it.

Also mentioned last week was the split personality of silver – moving with both the price of gold and downturns in the economy led by falling copper prices (see The Human Metal above). This was clearly evident this past week when both silver and platinum both plunged, while gold moved up closer to $1230/oz.

But for those who believe silver is not the place to be, think again.

Silver is still above $17/oz – a number that makes many silver miners profitable. It also has the ability to deliver investors much larger gains than gold during bull markets. In many cases where gold prices have doubled, the price of silver has tripled… quadrupled… and even outperformed gold by a factor of more than six-to-one!

While the price of silver has recently been impacted by a battered global economy through industrial and fabrication demand, the increase in silver investment demand is expected to continue.

Remember, short term thinking in this market will only frustrate investors – trying to predict daily world events is no way to invest in this type of market. 

Silver is already becoming one of the preferred investments to safeguard against a fragile global economy. And as investment demand continues to grow, silver prices should also rise. That’s why we believe the best time to invest in silver-related plays is now (see A Sneak Preview).

There are many ways to do this.

Silver Opportunity #1: Silver Bullion

The easiest way to invest in silver is to actually own the metal itself. This is generally done through either coins or bars.

This avenue of investment has picked up dramatically over the past year and in the last month alone, the US Silver Eagle coin reached its the highest monthly sales since 1986. But sales of silver bullion are also soaring in places such as China, where their government not only continues to strongly encourage its citizens to buy precious metals, but are selling them directly through their banks (see The Silver Conspiracy).

Both silver bars and silver coins are priced according to their weight and purity, but often carry a premium above spot silver prices. For those that can afford it, it’s better to buy silver bars over coins, as the premiums are generally lower than coins.

Silver Opportunity #2: Silver ETF’s

Exchange-traded funds (or ETFs) represent a quick and easy way for an investor to gain exposure to the silver price, without the inconvenience of storing physical bars.
Some of these ETF’s include:

Horizons BetaPro COMEX Silver Bull Plus ET (TSX: HZU): Seeks daily investment results, before fees and expenses,  that endeavour to correspond to two times (200%) the daily performance of the COMEX(R) silver futures contract for a subsequent delivery month.

Horizons BetaPro COMEX Silver Bear Plus ETF (TSX: HZD): Seeks daily investment results, before fees and expenses, that endeavour to correspond to two times (200%) the inverse (opposite) of the daily performance of the COMEX(R) silver futures contract for a subsequent delivery month.

Central Fund of Canada (TSX: CEF.A) (NYSE: CEF): Has 45% of its reserves held in silver with the remainder invested in gold.

iShares Silver Trust (NYSE: SLV): One of the largest Silver ETF’s

Silver Trust (NYSE: SIVR)

PowerShares DB Silver (AMEX: DBS): holds its worth in futures contracts for physical delivery, which are later sold to silver consumers in order to roll over expiring contracts to contracts further from expiration.

ProShares Ultra Silver (NYSE: AGQ): seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

Silver Opportunity #3: Silver Stocks

This is by far our favourite way to play the silver boom – yet it is the least direct of all investments tied to silver.

That’s because mining companies that mine silver usually mine other stuff, such as lead and zinc, and its share price is rarely dependent on the price of silver alone.

But the most enticing factor in playing the silver explorers and miners is leverage.

Aside from the price of silver, there are many factors that can substantially appreciate your investments in these companies. Things such as permitting, cost of production, and increases in resource, can all play a strong role in your return on investment. Because of this, higher prices in silver may lead to a stronger gain in a mining company’s shares.

However, there is downside. As with any company, non-market factors such as management decisions and permitting issues will affect investment.

There has been a big selloff of silver stocks over the last month. Both big name silver producers and small cap silver juniors have been hampered by the recent summer sentiment. You can bet that the markets as a whole may experience the same old summer doldrums. Some of these silver stocks have declined as much as 10, 20, and even 30 per cent in the last month.


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