Anyone who thought the silver bull-run ended with the metal's recent price slip should think again, because there's a silver price rebound about to take off.
Silver prices dipped more than 20% in May after testing $50 an ounce, but Washington's lack of progress on the debt ceiling debate has rattled investors, sending them once again to the safe havens of gold and silver.
Silver futures for September delivery closed yesterday (Tuesday) at $40.361 an ounce on the Comex division of the New York Mercantile Exchange (NYMEX).
"Silver is obviously on the move," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Thanks to continued fiscal follies, it has come screaming out of the proverbial hole it dug for itself a few weeks ago. In fact, barring some sort of massive financial reckoning in Washington, I have absolutely no doubt in my mind that silver will hit $60 an ounce in the near future."
But interested investors can't hesitate if they want make the most of the silver price rebound, as the metal has started climbing back toward its record high of $50 an ounce.
"If [silver] is something that interests you, don't dilly-dally…you may be running out of time," said Fitz-Gerald.
Silver's safe-haven investment appeal hasn't just attracted investors, but also foreign economies that are losing faith in the U.S. dollar and are now trying to diversify from the greenback.
"Don't forget, it's not just our debt that matters, it's what other people think about our debt," Fitz-Gerald said last week during a guest appearance on FoxBusiness' "Varney & Co." program.
The fact that countries like China, India and much of the Middle East fear the declining value of the U.S. dollar means they'll continue to buy gold and silver as strategic assets, he said. Of course, the U.S. government's growing debt isn't the only reason silver is ready to take off. Industrial demand and emerging market growth also will conspire to push silver prices to new records.
Annual industrial use for silver increased 20.7% from 2009 to 2010. Silver's physical properties make it ideal for use in batteries, chemical production, electronics, medical supplies and solar energy.
Its growing popularity has pushed demand to outpace production.
Current annual global silver production is estimated at 700 million ounces, but it can't keep up with rapid demand growth. Industrial demand increased by 17% globally from 2008 to 2010 and could rise another 36% by 2015, according to the Silver Institute.
China is the main driver behind soaring demand for silver. The country accounted for nearly 23% of worldwide silver consumption last year.
India is using more precious metals as well. The country's silver and gold imports rose 200% in this year's second quarter.
Newedge USA LLC said last week that it expects Asia's long-term silver demand to push prices up 77% to $70 an ounce by March 2012.
Finally, the Hong Kong Mercantile Exchange's recent move to list silver futures will also put some muscle behind the silver price rebound. Dollar-denominated Chinese silver futures were scheduled to begin trading on the Hong Kong Mercantile Exchange last Friday, granting Asian investors direct access to the metal.
Money Morning's Fitz-Gerald said easier access to silver trades is a market game-changer and highly bullish for long-term silver prices. "China has a staggering $3.2 trillion in currency reserves, and it has to put that money somewhere; investing even 0. 1% of those reserves ($3.2 billion) in silver would move it well beyond current prices and would help propel the 'other precious metal' up past the $60-per-ounce target that I've forecast," said Fitz-Gerald. As Money Morning has outlined before, there are a number of ways to play the silver bull.
Contributing Editor and resources expert Peter Krauth suggested Global X Silver Miners Exchange-Traded Fund (NYSE: SIL), a favorite of noted investor Eric Sprott, of Canada's Sprott Asset Management LP.
"As Sprott himself recognized, silver shares, which normally offer good leverage on the metal's price, have underperformed silver in its run-up from late last summer to this spring," said Krauth. "This ETFis a great way to obtain instant diversification amongst a group of 25 silver miners, refiners, and explorers. Total expenses only run 0.65% and volume is a respectable 1 million shares of daily trading."
Money Morning Contributing Writer Jack Barnes has called Silver Wheaton Corp. (NYSE: SLW) a "Buy" since last fall. The company had a blowout first quarter this year and started paying a quarterly dividend.
"I believe Silver Wheaton has the necessary muscle to be extremely profitable over the long term," said Barnes. "It is growing its asset mix, its revenue, its production volumes, and its margins all at the same time."
For a more detailed look at Money Morning financial experts' advice on playing the silver price rebound, check out this report on silver investing strategies.
News and Related Story Links:
- Money Morning:
Industrial Demand Set to Drive a Rebound in Silver Prices
- Money Morning:
The Silver Bull: Despite This Week's Sell-Off, We See Higher Prices Ahead
- Money Morning:
Buy, Sell or Hold: Silver Wheaton (NYSE: SLW) Is Just Getting Started
Newedge Sees Gold at $1,800 in 2011, Silver at $70 by March on Asia Demand