Saturday, September 22, 2012

Why Silver Prices Will Continue Going Up

Gold has been among the top performing assets over the last decade, soaring from under $300 an ounce to over $1,900 an ounce during that period of time. Investors and traders believe over the next decade silver will be among the top asset performers, as it has lagged gold during the last 10 years.

One of the many reasons for that is the extraordinary move up in the price of gold, which has resulted in individuals and smaller investment firms looking to lower-priced silver as an alternative to gold.

And now with the American central bank, the Federal Reserve and the ECB releasing more rounds of quantitative easing, gold and silver will continue to rise, with silver believed to be positioned best to take advantage of that printing of money; although gold prices and gold miners will continue to soar in price as well.

If anything can be sure in investing, it's in regard to the price of silver and gold during this period of time.
The Federal Reserve has announced it will acquire $40 billion in mortgage-backed securities on a monthly basis, one that is open-ended and based upon performance of the economy and the employment rate.

With no end in site for job improvement, and with QE1 and QE2 doing nothing to improve the economy, it appears we're in for a long period of spending by the central bank, which will devalue the U.S. dollar as well as push up the price of silver and gold during the duration of the "stimulus."

Again, with silver lagging the performance of gold, that bodes especially well for the white metal.

Silver Supply

Now the next reason to really like silver is that supply has never been so tight as it currently is, as demand has risen while supply is struggling to catch up.

Part of this reason is the huge number of products needing silver as part of their design. For example silver is used in cell or mobile phones or handsets. Most of this is unrecoverable, as is some silver used in medical products.

That means while silver demand rises, a larger percentage of silver is unable to be melted down and reused. Over time this will significantly impact the price of silver.

In the near term this isn't as important as the spending of central banks, which will devalue currencies of perspective countries or regions, but also also boost inflation, which results in investors fleeing to silver or gold to keep pace with rising costs.

About the only sector where silver demand is falling is in photography, where digital cameras are replacing former camera technology. But that has had little effect on growing demand for silver in emerging technologies.

Silver Investment Vehicles

So what types of silver investment vehicles should traders or investors look for?

For those who understand and are comfortable with it, options are a great choice, especially with the very predictable movement of the precious metal at this time.

If you don't understand silver options, you may want to educate yourself concerning them, as it's a very lucrative way to invest in silver with a minimum amount of your own capital.

You can also hire an expert to do the investing for you, although one should still know the basics of the process so your money is working in the way you want it to. In other words, choose a reputable brokerage to invest your money for you.

Other ways to invest in silver is through silver streaming companies, silver coins, silver miners and silver ETFs.

Silver Coins

Depending on your strategy and goals, a number of silver experts believe the absolute best way to invest in silver is via silver coins.

This is a strategy which isn't just to simply build wealth, but to preserve wealth as well. And in the case of social unrest and uncertainty, they are very portable and can be used to acquire almost any type of necessity and need in order to survive.

Although that may seem far-fetched in some countries, the reality is there is already turmoil of this type, and with the devaluation of currencies around the world, silver coins are a major and effective way to retain the value of your wealth.

Silver Miners

Like any public company we're looking to invest in, we need to perform due diligence on any silver miner, and also take into account the reason we're investing in a miner in the first place.

If we're only using a small portion of our capital to invest in a junior miner which is largely unproven but has some major upward potential, it's all a matter of getting the best data available to make in informed decision. It's all about provable or likely reserves and getting in at a great price point.

But since most investors aren't willing to take those types of risks, the majority will look at proven silver miners; those that have a track record that can be understood, as well as great management in place.

Also important is where the mines of particular companies are located. If they're in unstable geo-political regions, it adds a lot of risk to the investor, even under great macro-economic conditions.

Finally, researching and knowing the proven silver reserves, as well as secondary metals in a project, is vital to deciding on which silver miner to invest in.

Overall, it's not a lot different than any company, other than silver and other metals are usually easy enough to measure within the parameters of the operations being run by a miner.

Playing a major factor with miners is also the cash-on-hand and the amount of debt held by the company.

Silver ETFs

Silver ETFs are another fantastic way to invest in silver, with several of them existing for those wanting to play the market in a certain way.

For example, for a pure silver play backed by physical silver, you have the ETFS Physical Silver Shares ETF (SIVR) and iShares Silver Trust (SLV).

Other ways to utilize silver ETFs is through the PowerShares DB Silver. This particular ETF has within it silver futures contracts, which are different than the spot price of silver.

Global X Silver Miners exists for the purpose of those not interesting in investing in silver futures options or physically-backed ETFS. This ETF is filled with a grouping of silver miners for those believing they're going higher in the future.

The ProShares Ultra Silver ETF focuses on the assumption the price of silver will continue to rise. If correct, investors could make a huge amount of money, but along with that possibility comes more risk.

While it's a good economic climate for this ETF, investors need to research the risks inherent in leverage and inverse ETFS.

On the other side of that is ProShares UltraShort Silver ETF (ZSL), which bets the price of silver is going to fall. This can be effectively used during short-term drops in silver prices, which can produce a nice, quick amount of money.

As with ProShares Ultra Silver, the prices can fluctuate quickly, so the buyer needs to beware on short-term trades.

Silver ETFs offer investors about every conceivable way to invest in silver without needing to watch individual companies or contracts.

Here's a list of some silver ETFs and their tickers:

iShares Silver Trust Fund (SLV)
ETFS Physical Silver Shares ETF (SIVR)
PowerShares DB Silver Fund (DBS)
ProShares Ultra Silver ETF (AGQ)
Global X Silver Miners (SIL)
ProShares UltraShort Silver ETF (ZSL)

Silver Streaming Companies

In what I consider the best way to invest in silver to build your wealth, are silver streaming companies. Silver streaming companies offer financing to silver mining companies in exchange for the right to acquire a portion or all of the silver production at a mining company. That's also done with gold by some of the silver streaming companies as a secondary resource.

This is particularly important and effective at this specific  time because European bankers, which were the predominant financers of mining companies, have pulled back in investing in the sector because of sovereign debt issues in the eurozone, causing a potential shortage in financing of miners at a time when gold and silver prices are set to soar again.

What's really powerful about this business model is these companies can lock in low prices which create huge margins as the price of silver climbs. And even if the price of silver pulls back, the price agreed upon is so much below the market price that margins are still significant even if silver prices pull back.

Silver Wheaton the King of Silver Streaming Companies

Among the silver streaming companies there have been none as lucrative and as large as Silver Wheaton (NYSE: SLW), which has brought tremendous returns to investors over time, and continues to do so.

The strength of the silver streaming business model for Silver Wheaton and other companies is they don't face the risk of labor challenges and an increase in production costs. They lock in the price of silver no matter what happens in the overall global and regional silver market.

They also lock in prices no matter what happens internally at the company they're financing. This is why silver streaming companies such as Silver Wheaton are able to produce such awesome margins and low costs. Both are also very predictable and easy to access.

Risks for Silver Wheaton are in regard to disruptions at mines which could slow down production and result in less sales, revenue and earnings for any particular quarter. In most cases that's only a temporary blip, as the conditions of the agreements made with mining companies remain in place. Over the long term they'll extract the revenue from their partners no matter what may happen in the short term.

But even here there are only occasional problems, and as long as investors watch the companies and properties invested in by Silver Wheaton, there will be no surprises to catch them off guard, and slow downs should be looked upon as opportunities to plow more money into the company.

With a decent dividend, investors will also get a nice benefit in addition to the rising share price.

Investing in Silver

So with the surety that silver prices will rise for some time to come, with many experts seeing another approximate 50 percent jump in prices before a major correction, it's very much worth the while of investors to take a very close look at silver and get in as soon a possible.

The only thing to consider for those that haven't invested in silver before is because supply is much lower than gold, prices can swing in larger and quicker movements than its precious metal counterpart.

In other words, don't panic when investing in silver, especially in the midst of this major silver bull market, as it is far from reaching its high, and those that hang in their will reap some major rewards.

No comments: