Don’t Be Afraid to Invest in Silver

 

Silver historically has not performed as well as its fellow precious metal — gold — during financial crises. But I found several signs predicting an increase in silver prices over the next year. And in today’s video I’ll highlight ways you can benefit from that trend.

Best wishes,

Rudy

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Video Transcript

Hi, this is Rudy Martin for Uncommon Wisdom Daily TV.

Silver has taken a beating relative to its fellow precious metal gold, but judging from some renewed optimism in the marketplace, I think now may be the time to get back into silver.

Take a look at some of the recent action in silver bullion coins. The U.S. mint sold nearly 4.5 million ounces of American Silver Eagles in September, the most since January. And five of the top ten sales months in history happened this year, putting 2011 on pace to be the best year ever.

So what’s driving this buying momentum? First of all, I believe silver is benefiting from increased fear in the marketplace. Despite last week’s agreement, Europe is still clearly nowhere near a solution to the sovereign debt crisis. And investors know this. Just look at the recent spike in Italian bond yields, which were once considered among the safest on the continent.

This type of fear typically creates rallies in precious metals. But silver has not always benefited from that trend. During the 2008 financial crisis, it fell 24% while gold rose 5.5%. And over the past six months, as gold has jumped nearly 8%, silver has lost almost 32%. During that time, silver coins have fallen from a high of around $52 in April, all the way down to $32, a decline of 58%. The reason for this discrepancy is that silver is an industrial metal as well as a precious metal, so a slowdown in global economic growth can cut into demand from businesses.

But now, there are signs that the tide may be turning. According to the Commodity Futures Trading Commission, net-long positions on silver futures contracts among money managers are running two to one in favor of higher prices. By comparison, traders are betting three to one in favor of higher gold prices, but they’re actually net short on copper.

Meanwhile, a Bloomberg survey predicts an 18% gain in silver prices by the end of the year, and a 33% increase within 12 months. This uptick in demand is mainly coming from the financial markets, specifically the silver ETFs. The most liquid of those funds, the iShares Silver Trust (SLV), helped my readers bag some nice gains earlier this year. And I’m now keeping my eyes open for another entry point in SLV.

For value investors, another potential play might be Silver Wheaton (SLW). It’s down 10% year-to-date, but I think investors are ignoring the fact that it has the fourth largest silver reserve base in the world, a quality balance sheet and the ability to pay and grow a dividend, making it one of the cleanest ways to invest in silver.

Finally, if you’re interested in a silver investment with a gold lining, consider Peru’s Compania de Minas Buenaventura SA (BVN). Half of its revenues come from gold, and the stock is down 15% so far this year.

There are risks to investing in silver. Namely, a slowdown in Chinese economic growth could weaken demand. However, I believe that growth won’t decline enough to have a significant impact on prices. That fact, plus the continued investment demand from the U.S., argues for adding silver to your portfolio.

I’m Rudy Martin for Uncommon Wisdom Daily TV. Thanks for watching.

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