Daily Gains Letter

Bull or Bear, Here’s How to Make Money with Silver

By for Daily Gains Letter | Apr 23, 2013

Bull or Bear, Here’s How to Make Money with Silver

Do silver prices have any room to run up, or has the metal lost its shine? This question is getting a lot of traction these days among investors, as the price of the gray metal has declined significantly since the beginning of this year—more specifically, since the recent drop in prices in April.

In April of 2011, silver prices hit a record high and reached almost $50.00 an ounce. In 2012, the metal traded in a sideways channel, from $27.00 to $35.00. Take a look at the long-term chart of silver prices below:

Chart courtesy of www.StockCharts.com

Historically, since the bull run in silver prices began—in the midst of 2001, when it traded close to $4.00—there have been sharp corrections. In 2008, silver prices fell from trading above $21.00 to $9.00 per ounce; this was before the financial crisis started to really unfold. Similarly, in 2006, silver prices dipped more than 30%, dropping from $15.00 to below $10.00 per ounce. Going back even further, in 2004, silver prices plummeted from trading well above $8.00 to below $5.50. (All these periods are circled in the chart above.)

In all these instances, it took silver more than a year to recover and reach a high.

Keeping all this in mind, the bulls are saying that as long as the global economy remains treacherous, governments continue to spend, and central banks around the world keep printing money; then just like gold, silver prices will soar higher, as well. The bulls argue that the global economy is still fragile: China is slowing down, the U.S. is witnessing dismal growth, and the eurozone is still taking its toll on the rest of the world. The silver bulls say this is a healthy pullback and it can help silver launch even higher.

On the contrary, the bears argue that the global economy is getting better. Silver rose significantly after the financial crisis, because people needed some sort of safe haven; silver provided that, along with gold. But now, there isn’t much use for silver when “things are getting better.” The global economy is witnessing growth, the U.S. economy is in much better shape than it was before, and other countries are seeing an improvement in their economies, as well.

Regardless of which side investors are on, they can make money. If an investor is bullish on silver, then they can look at exchange-traded funds (ETFs) that specialize in silver and let the investor profit if the prices take a turn to the upside—like the iShares Silver Trust (NYSEArca/SLV). This ETF moves in line with silver prices. (Source: “SLV Profile,” Yahoo! Finance web site, last accessed April 19, 2013.) Even with aggressive bets on silver prices increasing, investors may want to look at ProShares Ultra Silver (NYSEArca/AGQ). This ETF tracks the price of silver and provides investors with two-times silver’s daily performance. (Source: “AGQ Profile,” Yahoo! Finance web site, last accessed April 19, 2013.)

For those on the other side who are bearish towards silver, they might want to consider something like the ProShares UltraShort Silver (NYSEArca/ZSL) ETF. Through this ETF, investors can profit if silver prices fall—it provides two-times the inverse return of silver. (Source: “ZSL Profile,” Yahoo! Finance web site, last accessed April 19, 2013.)

With all this said, eventually, either the bulls or the bears will be proven wrong. Silver prices currently haven’t made any significant move, which may provide some guidance as to where the price will head—it can go higher and it can even go lower. Investors need to use caution; no matter what their opinions may be, they must make use of stops and continue to focus on the long-term growth of their portfolio.

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