Silver Prices Ready to Rocket; Four Reasons Why and Two Ways to Buy

By Mike Caggeso
Associate Editor

Silver prices have vaulted an extraordinary 106% in the past two and a half years.

More impressive, silver prices have gained 33% since mid December.

Now, compare that to how U.S. stocks have fared since then: The Dow Jones Industrial Average has plunged 13.6%; The Nasdaq Composite Index tumbled 10.5%; The S&P 500 Index has fallen 11.1%.

Like gold, silver is a safe haven from inflation and a weak dollar. The prices of the two metals often move parallel to one another. However, silver is poised to rocket – handing investors not only gains in our bear-market economy, but steeper gains than gold.

James Turk, founder of GoldMoney, said in his annual forecast that the U.S. economy "will get much worse in 2008, making gold the premier asset of choice, but not the best performing precious metal. That honor will go to silver, which I expect will clear $30 in 2008."

From silver's current price of $18.33 an ounce, $30 an ounce would be a 63.7% gain.

And here are four reasons why that's more than probable:

• Supply and Demand: Silver, quite simply, has better supply and demand characteristics than gold. For 18 straight years now, we've consumed more silver above ground than we've been able to extract from below ground (compared to only four to five years for gold). That's because only a portion of silver demand comes from investors. Commercial demand for silver is growing, whether for jewelry, electrical conductors, photographic film or disinfectants. And the rate at which industry finds new, unique uses for the white metal is staggering compared to gold.

• Above Ground Supply: Unlike gold, which has been hoarded by central banks for decades, there's no appreciable aboveground supply of silver. Therefore, whatever is needed must be mined. And there's very little threat of central banks selling large tranches of silver into the market, which is always an overhanging concern with gold.

• Emerging Markets: Despite fears to the contrary, robust industrial demand for silver will continue even if United States slips into recession. That's because the true driver toward higher commodity prices, in general, is emerging markets like China, India, Russia and Eastern Europe. China's expansion alone can be compared to the industrial explosions that took place in Japan in the 1960s and the United States at the turn of the last millennium. 

• Market Capitalization: The silver market is much less capitalized than the gold market. Fewer dollars trade daily on the silver exchange than on the gold exchange. As a result, every dollar spent on silver will have a greater impact on the silver market than dollars spent on gold will have on the gold market. To visualize this concept, consider the relative impact of a rock tossed into a pond versus the same rock being tossed into a puddle.

Two Ways to Ride Silver's Rise

We're in uncharted waters for gold, and getting into levels for silver pricing that we haven't seen in almost three decades. So don't be a spectator as the dollar continues it's fall and precious metals excel. Take advantage of silver prices and start accumulating it now.

Here are the two best ways.

Silver Play #1: iShares Silver Trust (SLV). Point and click your way to silver ownership. The trust seeks to reflect the price of the silver it owns less any expenses and liabilities. So far, it has gained 44.18% in the past 12 months, nearly lockstep with silver's spot price. The Silver Trust contains roughly 155,699,740 ounces of silver. Liquidity is favorable also, averaging over 480,000 shares traded daily.

Story continues below…

Get $26,000 Worth Of Our Best Investing Ideas For Just $5

Silver Play #2: EverBank Select Metals Select Account. Another great choice for silver investing is through an EverBank Metals Select Account, in which you can buy silver (and gold) at just 1% above the market price. In "unallocated" accounts, your purchased metal is pooled with that of other investors like you, which eliminates storage and maintenance costs. "Allocated" accounts allow you to purchase your own silver and gold – bars and coins – with a custodial fee. Both types of accounts can be set up 24/7 online. But if you prefer a phone, call 866-326-6241, and be sure to give them the code 12608 when setting up an account. 

We should point out that the publisher of Money Morninghas a marketing relationship with EverBank, but that's because its products are best in show.

[Editor's Note: But if you're a die-hard gold bug, you'll be interested in Money Morning's Martin Hutchinson's prediction that the metal could climb as high as $1,500 in the near future. For addition profit plays on gold - as well as oil, the U.S. dollar, sovereign wealth funds, emerging markets, agriculture, uranium, biotech and much more - check out Money Morning's latest book, The Essential Investors Playbook.]