A Bullish Case for the “Other” Precious Metal
Silver has been one of my favorite precious metals. One of the reasons I like the white metal is because not only is it used as a store of value, but it also has industrial uses. With that said, this shouldn’t suggest that I don’t like gold. The yellow metal has its own place; it provides a hedge against inflation and uncertainty. Silver, however, I see as having much more potential than gold when it comes to percentage change.
Putting it simply, for silver to increase 100% in value, it will have to go to $40.00, considering the current price is $20.00. For gold to go up by the same degree, it will have to increase to $2,700; it can get there, but it will be a very rigorous battle.
We are currently seeing the demand for silver increase, just like we did with gold. This shouldn’t go unnoticed by investors.
Since the beginning of this year, we have seen the Indian government working together with the country’s central bank to curb the demand for gold bullion. We were told that “it was impacting the country’s trade accounts.”
India has since imposed higher taxes and tariffs. As a result of this, a new trend emerged, with the demand for white precious metal increasing in the country that prides itself as the biggest consumer of gold. Silver imports from April to July in India increased 258.65% to 857 tonnes, compared to 239 tonnes in the period a year ago. (Source: Mishra, P., “July silver imports highest in 5 years,” The Times of India web site, August 2, 2013.)
Looking at the demand for the white metal in the U.S. economy, it is robust as well. For example, look at the coin sales at the U.S. Mint. In the first eight months of this year, the Mint sold 33.07 million ounces of silver in coins. In the same period a year ago, the U.S. Mint sold only 22.54 million ounces of the precious metal in coins, making this past year an increase of almost 47%. (Source: “Bullion Sales/Mintage Figures,” United States Mint web site, last accessed September 17, 2013.)
Where are the silver prices going next?
I tend to stay away from predicting tops and bottoms because I believe it’s just not possible. But with all of this happening and demand increasing, the white precious metal does look bullish.
Now, the most critical question: how can investors profit from this situation in the making? At the very least, investors should know that the prices can remain depressed for a long period of time. They can certainly look into silver miners, but they would need to do a significant amount of research. Investors need to look at companies that are cutting costs, have high grades of silver in the ground, have cash on hand, and have low production costs. In addition, investors have to remember that miners provide them with leveraged returns, making them a double-edged sword; if silver prices go down by 10%, the miners could see much steeper losses.
In times like these, where precious metal miners are facing a precarious future, investors may be better off looking at exchange-traded funds (ETFs) like the iShares Silver Trust (NYSEArca/SLV). This ETF exposes an investor’s portfolio to the precious metal’s prices and follows them closely.
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