Silver Investing: Four Ways to Profit with the Ultimate Silver Portfolio
By Ryan Fitzwater, Investment U Research Team
A 2011 Investment U White Paper Report
If you've never considered silver in your investing strategy... you should.
Not only can silver provide an excellent hedge against market volatility, but it can be an exceptional investment. In fact, over the past 12 months, silver has leapt 117%.
And our analysis shows that silver's surge is just getting underway.
In fact, it could easily dwarf the boom of 1980, when silver jumped from $5 to $48 per ounce - an 860% gain in only 12 months.
The reasons are simple...
- After 17 years of critical shortages, supplies have reached all-time lows. With mining production of only 680.9 million ounces, and worldwide demand of 888.4 million ounces, global stockpiles are being tested like never before.
- What's more, the demand for silver is coming from multiple sources... While many investors might think of silver as "just another" precious metal, its application as an industrial metal is really what's driving demand through the roof.
- Flip on a light switch... grab a drink from the refrigerator... use your washing machine... glance in the mirror... turn on your microwave or watch cable TV... or use any number of high-tech gadgets - all possible thanks to silver.
So as more and more consumers require more and more silver dependent merchandise, supplies are being stretched to the brink. In fact, it's fair to say that the world is literally running out of silver.
But here's the good news: there's still time to make a play on silver before it really takes off. At about $39 an ounce, silver's still a bargain compared to its peak in 1980, when the first major boom in this metal made investors high triple-digit gains very quickly...
The Red Dragon Fuels "Silver's Boom"
As with so many opportunities today, the coming boom in silver can be traced back to China and India...
Once a leader in production, China's voracious appetite for all things silver has left it empty-handed. With its 1.3 billion consumers, the Asian giant announced its above-ground silver supply was completely gone... six years ago! Think of the growth the Chinese economy has seen even since then.
With a middle class of 300 million (larger than the entire population of the United States), the Chinese consumer is increasingly demanding the latest TVs, automobiles, plastics and electrical products - all requiring silver.
The demand for silver as an industrial metal is the critical factor behind the current surge in the spot price. As the world economy starts to pick up steam again, the demand for these goods will increase too, making silver the ultimate growth play in the precious metals sector.
But there's still another reason we believe silver deserves a place in your portfolio. Silver is, after all, a precious metal too.
And what that means is that silver - much like gold - provides investors with the perfect hedge against inflation, and in particular the declining value of the U.S. dollar...
The "Bargain" Hedge for Protecting Your Portfolio
Over the past 30 years, the dollar has declined against most major currencies.
Clearly, protecting your nest egg against hard times is one of the smartest strategic moves you can make within your portfolio right now.
And while many investors are piling into gold, most fail to realize that silver provides the same protection, but at a fraction of the cost. And the relationship between gold and silver is simple: Silver follows gold over time. When gold gets more expensive, so does silver. Always has - and most likely always will.
Of course, from a dollar standpoint, it will never be more precious than gold. But the "poor man's gold" has matched the performance of the "real" thing, and should continue to do so in the years ahead.
Over the next 12 months, we believe it could be headed for $48 per ounce. Long-term, if both silver and gold continue performing as experts expect, reaching new all-time highs, silver has much higher to climb than gold, making it very appealing to investors.
And there's every reason to expect the precious metal will make at least part of the voyage.
In short, silver has become as essential to your portfolio as gold.
- If you had tucked $100,000 under your mattress in 2002, by today you'd have actually lost about 17.4% of your money because of inflation. Your $100,000 savings would now be worth only $82,519.53 in purchasing power.
- However, had you taken that same $100,000 and invested in silver, it would now be worth $391,397.
And don't forget, that's the past. By all indications, inflation over the next few years should be substantially higher. With the Federal Reserve printing money at record breaking rates, hanging on to cash could be disastrous.
So as you can see, not investing in silver can actually cost you money. Because there's no telling what the future holds...
The Last Time this Happened, Investors Got Very Rich
In addition to hedging your portfolio against inflation, silver can protect your investments against other economic hardships. (Keep in mind that precious metals actually gained value during the Great Depression.)
When silver exploded back in 1980, the U.S. had racked up an extraordinary debt, Washington D.C. was plagued with political uncertainty, and the Middle East was in the midst of extreme turbulence, including the Iranian hostage crisis. Similar factors are at play right now, setting the stage for silver's second boom.
- As for the economy... not so good. Debt, debt and more debt, is eroding consumer confidence and the U.S. dollar. That makes Wall Street jitters more profound... as evidenced by the market's recent volatility.
- Iran, the world's second largest oil and gas producer, is becoming more and more aggressive in its position regarding its right to enrich uranium. Should its demands not be met, Iran is threatening to cut its energy production drastically.
True, historical parallels are inexact, but the similarities are uncanny. That, along with the general sense of anxiety, is fueling precious metal prices.
Which brings us to how investors can profit...
The Ultimate Silver Portfolio
There's no one good way to take advantage of the bull market in silver - there are many. The Investment U research staff has identified four ways to invest that we think deserve your attention...
1) The "Conservative" Play - Silver Coins
Purchasing silver coins is probably the most familiar method of investing in the white metal. Coins are available to purchase in small and large quantities, and storage usually doesn't take more than a safe in your home, if that. Some silver coins can be worth MUCH more than their meltdown value.
2) Profit from the Bull Market Directly
Investors looking to own silver can consider holding certificates from the Perth Mint Certificate Program (PMCP).
In purchasing certificates via the PMCP, your silver is stored with a government guarantee at the Perth Mint warehouse in Western Australia. And you'll get a certificate that shows how much of the metal is being held for you. Your profits here are directly correlated to silver prices, but the mint does charge storage and insurance fees.
You can buy Perth Mint Silver Certificates through Asset Strategies International (800.831.0007).
3) The New Opportunity in Silver Investing
In recent years, another silver opportunity emerged, in the form of an Exchange-Traded Fund (ETF).
The iShares Silver Trust (AMEX: SLV) is backed by more than 344 million ounces of silver and $9.34 billion in assets. The expense ratio is only 0.50%. The fund's objective is to provide investors a simple and cost effective means of investing in silver - one that's highly correlated to the price of silver, without having to take any physical delivery of the metal.
4) Silver Stocks Poised to Soar
Some investors prefer investing in silver mining companies because the stock price is highly leveraged to the price of silver itself. Here are a couple of companies that will rake in huge profits as silver skyrockets:
- Silver Wheaton (NYSE: SLW)
Because its entire revenue stream is derived from silver mining operations, Silver Wheaton's stock price is highly levered to the price of silver. With 16 active mines, the company sold 22 million ounces of silver last year. And unlike a slew of other publicly traded miners, Silver Wheaton is highly profitable.
At the root of its success is a simple formula: higher production + higher prices = higher profits. Silver Wheaton is currently able to produce silver for less than $3.95 per ounce, but can sell it at today's going rate of around $39 an ounce.
And because of its size and cash resources, the company has also entered into several other long-term contracts to buy silver from smaller producers for under $4 per ounce. By paying less than $4 for silver for the next several years, Silver Wheaton is essentially locking in a sizeable profit (assuming that prices will remain high over that time).
- • Silver Standard Resources (Nasdaq: SSRI)
Silver Standard is another solid silver mining company with a stock price highly levered to the spot price of silver. Silver Standard's claim to fame is the fact that it controls the world's largest in-ground silver resources of any publicly traded silver company. The company's latest figures show 286.8 million ounces of proven and probable silver reserves.
Since 1946, the company has focused on the acquisition, exploration and development of silver-related endeavors. The company's global footprint is huge, with operations in Argentina, Australia, Mexico, the United States, Chile, Peru and Canada. In fact, three major Latin American properties should be ready for production in the next five years.
This Party is Just Heating Up
Today, the bull market in silver continues... and we expect it to charge forward for some time.
Surely, there will be some bumps along the roller coaster ride over the next few years. However, such corrections are not signals of the end of the bull market. They are, just as the word implies, corrections in an overall trend that remains intact.
Whatever your avenue, now is the time to buy silver, all things considered. It's the perfect hedge against inflation and a weak U.S. dollar.
And as we march towards 2012, the rising global investment demand for silver and worldwide industrial demand will become the key factors driving silver to new highs.
Investment U Research