Silver Mining
In the “Commodities Decade,” Silver Glistens as an Investment Strategy
An Investment U White Paper Report
From the Investment U Research Team
Silver gets no respect. It’s not considered as ornamental as other “precious metals” such as gold palladium or platinum. It’s certainly not as intriguing, and it’s it’s a heck of a lot cheaper than its distant cousin, gold. Despite all that, silver is doing quite nicely in what has become the “Commodities Decade.”
As with any asset class, there are pockets of investments within that class that provide investors with better opportunities, both in terms of safety and in potential return. And that’s why the research analysts at Investment U created this report on silver mining - your best chance for sparkling returns in the precious metals industry.
How Silver Stacks Up to Gold
While the vast majority of investors are aware of gold’s strength over the past couple of years, few know that while gold has doubled in price since 2001, silver has done even better. In fact, it has a five-year gain of 123%. Better still, if both silver and gold perform as some expect, and reach new all-time highs, silver has much higher to climb.
Gold is at about $555 an ounce. It needs another 30% push before hitting its record high of $850 in January 1980. But silver is just one-fifth of the way toward its record level. Trading at about $10.20 an ounce, silver would need to spike up to $49.50 an ounce before hitting that number.
And there’s every reason to think that the precious metal will make at least part of the voyage.
To be sure, the giant leap forward in silver and gold prices is due to speculation. In fact, there’s been a 400% increase in the net investment in silver, thanks in large measure to hedge fund activity and commodity trading on the futures exchanges, according to Michael Checkan, president of Asset Strategies International in Rockville, Md., a commodities broker.
But the popularity of silver has escalated for other fundamental reasons that could make the cost a very attractive buy for investors.
While Historical Demand Declines, New Innovations Ratchet Up the Need Elsewhere
Recently, three of the largest areas of demand for silver have shown significant decline. Better technology has increased the efficiency in creating jewelry and silverware, thereby reducing demand by almost 10%. Likewise, the advent of digital photography has resulted in a sharp decline for the traditional use of silver in photography.
It’s therefore somewhat surprising to learn that the overall need for silver has increased - up 5% this year alone in industrial demand. Specifically, in the electronics sector, the demand is up 14%, while the coin and medal fabrication business has pushed demand up 15%. Even more surprising, the same digital technology that’s cutting into silver’s utility in one aspect of photography, is also responsible for an increase in silver demand in another part of the equation - the creation of the components of digital cameras.
Supply is Dwindling
On the other side of the silver economics equation, the supply side, we see a significant drop. Basic economics will tell you that hot demand and a shrinking supply gets you higher prices - regardless of whether this is at the pump for gas or through your utility lines for power. Specifically, the supply of recoverable silver (or silver reclaimed from recycled end products) is declining, thus not meeting demand. Further, even when you combine newly mined silver with recovered silver from scrap, the total has been down for 16 years running. Make that 17 years in May.
�
Claiming the dubious title of leader in declining silver reclamation is China - down a whopping 30% from the previous year. Worse, last summer the Chinese government announced that it had depleted its stocks of silver. What does this mean on a world-use scale? Well, it means that the Chinese will be in competition with the United States (eighth on the supply production list) for silver.
The bottom line is this: Supply-demand equation screams investment opportunities in silver mining.
It’s all about the Commodities
So you’ve got greater demand for the stuff and dwindling supplies. What more could any investor want?
How about global, political instability? As the world continues down a multitude of paths toward greater chaos, the role of precious metals as a measure of currency stability grows. Here’s just a sampling of that instability
- Iran, the world’s second largest oil and gas producer, is becoming more and more bellicose in its position regarding its right to enrich uranium. Should its demands not be met, Iran is threatening to cut its energy production drastically.
- Iraq is unstable, to say the least.
- Hamas is running the Palestinian Territories.
Present-day world conflicts and economic question marks factor in as well, such as
- At home, terrorism and Bird Flu have become a permanent preoccupation for the worrying classes.
- 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. And the market has become more volatile since January.
- The last time this country, and the world at large, experienced similar economic and political uncertainty, the cold war and all of its consequences were in full effect. The Soviet Union was still unified, and American athletes were canceling their reservations to the 1980 Olympic Games in Moscow.
- President Jimmy Carter presided over political uncertainty, manned the helm as oil prices skyrocketed and the Consumer Price Index that surged 13% in one year.
True, historical parallels are inexact, but many of the same conditions that existed the last time silver exploded are in effect today. That, along with the general sense of anxiety, are fueling precious metal rises. So it doesn’t take a very big leap in faith to see that silver (and gold) could very well be on its long march toward history.
- Which brings us to how investors can profit
Obviously, there are any number of ways to get into a silver boom, but right now, silving mining companies seem poised for a breakout. Aggressive investors tend to seek out silver mining companies because the stock price is highly leveraged to the price of silver. If you’re an aggressive investor, you could put your money in mining companies like:
- Silver Wheaton (AMEX: SLW)
- Sterling Mining (Nasdaq: SRLM)
- Or Mines Management (AMEX: MGN), which has vast mining tracts in North America. (The downside to this type of approach is that mining is a dangerous business. A major flood can wipe out a mine. An explosion can send the stock tumbling).
Other Silver Investment Options
For more conservative investors, we simply suggest owning silver bullion. This can come in the form of coins from a reputable mint, or certificates from the Perth Mint Certificate Program (PMCP). Asset Strategies International is one of two companies in North America that is authorized to sell the certificates for the PMCP.
Good investing,
The Investment U Research Team
|
Related Articles:
- Mining Stocks: “The Second Best Time To Buy Them”
- Investing in Precious Metals: The Party in Precious Metals And Currencies is Heating Up..Look for This Major Bull Market to Push Prices Even Higher in 2006
- Investing in Gold and SilverWhat To Do
- Coin Investing: How an Investment in Rare Collectible Coins Offers Both Diversity and Profits
View the complete Silver Mining white paper in .PDF format
