Three Ways to Own Silver Before it Reaches $30

Leprechaun investors found their pot of gold four days before St. Patrick's Day, when gold broke the historic $1,000 an ounce mark.

The chief reason for gold's ascent is simple. Gold is a "safe haven." When economic and geopolitical turmoil rears up, investors scurry for gold. And the billions in subprime write-downs and the failing confidence in U.S. equities sent them into gold holdings on a dead run.

While gold stole all the headlines when it broke the $1,000 mark, few took notice seven days earlier when silver hit its highest price in 28 years. Silver's current spot price is $17.21 an ounce, but one analyst [a gold bug, nonetheless], believes "the poor man's gold" will break the $30 barrier this year.

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."

We agree with Turk that silver will shine brighter in 2008 for a number of reasons. Here are some of the most important:

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  • 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). 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, we anticipate that industrial demand for silver will continue to be robust should the United States slip into recession this year or next. That's because the true driver toward higher commodity prices, in general, is the emerging markets of 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. Less dollars trade daily on the silver exchange than do on the gold exchange. As a result, every dollar spent on silver will have a greater impact on the silver market than the 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.

Three Ways to Own Silver Today

For all the reasons above, we believe silver will outpace gold in 2008. After all, even with gold's precipitous rise in 2007, silver has still achieved better returns over the life of the prevailing bull market in precious metals.

Further, we believe that gold's ascent is emotionally driven. And fear and loathing in the marketplace for U.S. dollars and equities are still driving prices higher. The subprime crisis was the spark, and the golden fire will rage on in the year ahead.

Over time, however, this emotion will once again give way to the fundamentals of supply and demand amidst a continuing backdrop of the ever-weakening dollar. And in this longer-term scenario, we again give the nod to silver.

Accordingly, we suggest you stock up on silver in advance of its next move up. And while mining stocks offer investors an opportunity for the added leverage of a sound mining operation, it can also work against you should the company miss the expectations of Wall Street analysts.

That's why we recommend the following investments, which directly track the price of silver:

Silver Play #1: Physical Coins and Bars. Either purchase 90% U.S. silver quarters, dimes or half dollars minted before 1965 or 100-ounce Johnson-Matthey or Englehard bars. Premiums are reasonably low. Liquidity is high. But, so are the shipping costs.

Silver Play #2: 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 53.06% 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.

Silver Play #3: Perth Mint Certificates (PMCs). Undoubtedly, PMCs are the safest, most flexible, and most cost-effective method of owning silver for the medium- to long-term. They're a bit more cumbersome to own than shares of the above-mentioned trust, but weren't designed to be a short-term trading vehicle. The lack of fabrication charges, shipping charges and storage fees for unallocated bullion make PMCs the method of choice for owning silver for the long haul.

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.

[Advisory Panelist Michael Checkan is President of Asset Strategies International, Inc. based in Rockville, Maryland. He is a Pillar One Partner and available to answer your questions about investing in precious metals and foreign currencies. Checkan can be reached at 301.881.8600, or at 800.831.0007. He can also be reached via e-mail at [email protected]. Checkan also is a regular contributor to The Oxford Club. To learn more about The Oxford Club and its publications, please click here].


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