Silver Set to Sparkle

There's a great deal of economic uncertainty riddled throughout the western world to the point that there are reasons to believe the dollar is in the process of being both debased and devalued.

If the growing trade deficit and the persistent deflationary forces aren't enough to convince you that the dollar needs to weaken against other currencies and commodities then all one has to do is realize that confidence in the US economy around the world is at a low that we haven't seen in well over 15 years.

Those are some of the main reasons I like silver and silver miners like Pan American Silver (Nasdaq:PAAS). Silver has become the poor man's gold and the investment demand for it has never been greater.

I've enjoyed watching the soaring demand for the exchange-traded fund iShares Silver Trust (NYSE:SLV). Its popularity has impressed even the skeptics lately and it appears to be just beginning its ascent.

I'm aware of the arguments about owning SLV and gold in the form of the ETF (NYSE:GLD), and I'm one that thinks investors should begin by owning enough of the physical assets and storing them very carefully. But for those who might be interested in trading the ups and downs of the precious metals SLV and GLD does the trick.

Silver truly crashed in the summer and autumn of 2008 as hedge funds and traders were selling everything in order to raise capital and meet redemptions. Silver took it even harder on the chin because of its ongoing perception as an industrial metal as well as a monetary one.

Industrial demand for silver did drop sharply, but investor demand began to take off at just about the same time. That's why the store-of-value demand for silver protected it from suffering as much as copper, nickel and zinc, all of which sold off far more sharply. Copper has made an impressive comeback since, and so has silver.

When the gold/silver ratio improves in silver's favor and a worried investment community begins to look for hedges against future inflation other than gold, silver will surprise us all on the upside. The SLV ETF will become much more popular and the custodian of the fund, based on its charter will have to increase the amount of silver it buys and hold.

Finally, when the confused masses start hearing on their favorite news programs that silver is going up suddenly they too will jump on the band wagon. With the use of their brokerage accounts they will be buying any stock or fund that they perceive is a direct play on silver and the sky is the limit as to how high silver prices might be allowed to shoot.

From my point of view its just a matter of time. There could be a pullback on silver during the "summer shopping season" so I wouldn't buy any expecting instant gains. But if you're willing to be very patient, and you diversify also using silver-related stocks like Silver Wheaton (NYSE:SLW), Silver Standard Resources (Nasdaq:SSRI) and Pan American Silver you are likely to look back to this time and realize that it was a good buying opportunity.

Recently I learned from Dorothy Kosich at Mineweb.com that after an eight-day strike, unionized workers at Pan American's Morococha silver mine in Peru reached a settlement with the Vancouver-based silver miner and resumed work last Friday, Pan American officials announced it just the other day.

Pan American did not expect the short-term production disruption at Morococha to significantly impact its 2009 silver production forecast and the company still expects to mine 21.5 million ounces of gold this year. People forget that PAAS also produces gold.

The union workers had sought an increase in base pay and benefits. Pan American did not make public details of the settlement.

To make the best of the down time during reduced mining production during the strike, the company said repairs to a crack in the primary rod mill, discovered during the course of maintenance activities carried out during the strike, should be repaired in two days.

Meanwhile Pan American Silver also announced Tuesday that it has reached an agreement for the joint development of Orko Silver's La Preciosa silver project in the state of Durango, Mexico. The indicated resource is believed to contain 71.7 million ounces of silver and 97,000 ounces of gold.

Pan American and Orko have agreed to form a joint venture to develop Las Preciosa with Pan American providing 100% of the funds needed to develop and construct an operating mine in consideration for a 55% interest in joint venture, while Orko will continue its exploration expertise, the La Preciosa project and related concessions to remain a 45% interest.

The silver mine will spend US$16 million at La Preciosa over the next three years to conduct definition drilling, acquire surface rights, obtain permits, and prepare and deliver a feasibility study. Furthermore Pan American will spend $5 million in the first year of the development program.

Pan American will be the operator of the joint venture, and will form a management committee with representation from both Orko and Pan American. This all bodes very well for PAAS.

Peter Schiff of EuroPacific Capital was recently asked, "What should investors be looking at as a safe haven for the money that they have now?"

His answer seems more than reasonable,

Well, they should be looking at the traditional safe havens like gold and silver; they should also be looking at other commodities and at investments outside the United States. There are a lot of opportunities around the world. There are a lot of stocks that are extremely inexpensive, in my opinion, particularly in the Asian markets and the natural resource space.

There are a lot of stocks trading at valuations I have never seen; there's a lot of pessimism built into the global markets right now, and there are fire sale prices. The world has overreacted to our problems and the way our problems have affected their economies. And in this market environment of de-leveraging and asset liquidation, prudent investors who do have cash can find tremendous bargains around the world. They can preserve their wealth and actually profit from what's going on.

I think silver will rise in value by a greater percentage than gold over the next 3 years, and I'm basing that on many factors that are too extensive to elaborate on in this article. You've read Ted Butler and others I'm sure who can give you the fundamental details on silver's sparkle and underestimated potential.

Remember to go with only the best companies, ETFs and other providers when you buy your gold, silver or proxies. Do some careful due diligence and make sure your sources are as accurate and dependable as possible.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advamced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Disclosure: I'm long SLV, GLD, SLW, SSRI

Comments

[whidbey:]

You make sense and I applaud your modesty. No question that silver is the buy of the century, if you feel inflation is the inevitable result of current monetary and fiscal policy. Silver is "every mans" treasure. I think Obama has not idea of the depth and difficulty of his wishes to change America. Even his own party wants his promises and none of his pain. We are Plutocrats!! Parties not withstanding we want the best we can have and his policies of bread or all is good, but his free ride of all is not good. Americans know how it works and they haven't bought it. But! his moves are damaging so own some gold and silver too.

Apr 15 07:34 PM

[Alan Young:]

Wait--*Peter Schiff* is complaining about *too much pessimism*? Somebody send the poor guy a mirror.

Apr 15 08:09 PM

[ManAboutDallas:]

Pessimism is as easily overdone as optimism. It is also as easily misguided and misplaced. Pessimism and optimism - and the degrees of each - are also not mutually exclusive in a single individual.


On Apr 15 08:09 PM Alan Young wrote:

> Wait--*Peter Schiff* is complaining about *too much pessimism*? Somebody
> send the poor guy a mirror.

Apr 15 08:49 PM

[E.D. Hart:]

Does PAAS really mine 21 million oz of gold a year? That seems farfetched.

Apr 15 08:55 PM

[Tar:]

Farfetched is right. Pan American Silver anticipates mining 21.5 million ounces of silver in 2009, not gold. The author obviously doesn't know very much about the precious metal mining industry or he'd realize the obsurdity of his statement.

Apr 15 09:24 PM

[optionsgirl:]

No mention of CEF?

Apr 16 11:35 AM

[Marc Courtenay:]

Sorry about the typo. Although PAAS does mine gold too, it isn't 21.5 million ounces that's for sure. I own some CEF too, but I think the premium is too high if it is above 10%. The premium on silver coins right now seems absurd too. By the way, it wouldn't surprise me if by the end of 2010 gold is at $2,000 or higher, and silver will be pulled up with it.

Apr 16 11:57 AM

[gastrackerrock:]

Physical Silver and Gold...Hold it! Forget the ETF's, etc., and the companies that "store" it for you. Trust what you can see and feel...

Apr 17 08:10 AM

[TMFSinchiruna:]

Marc,

I agree with you that silver will likely outperform even gold in the coming years, and support your selections for equities... except that I do not recommend the ETFs at all. CEF has the track record and proven ability to time bullion purchases through non-dilutive share offerings at auspicious prices while serving also to reduce excessive premiums when they get out of hand. I agree that CEF's premium, which is indicated daily on its website, provides a helpful tool for timing the accumulation of CEF shares.

If I may, I would like to link my article on silver here as well, as I think it fits in nicely with the information you've presented here.

www.fool.com/investing...

I have found visualization of the "slingshot effect" very effective in conveying to investors approaching silver for the first time to understand some of the mechanics of silver's movements relative to gold. I will, of course, appreciate your comments and those of your readers.

I also echo your call for $2,000 gold by the end of 2010. I expect silver to trade near $50 when gold hits that mark, and i do not rule out prices quite a bit higher for either metal as the mother of all currency crises unfolds.

www.fool.com/investing...

www.fool.com/investing...

Thanks again. I hope you don't mind these links... they are not intended for self-promotion by any means, but merely as a service to your readers in preparation for what I believe will be a momentous continuation of the multi-year secular bull market for precious metals.

Apr 17 09:23 AM

[Mary LaRue:]

The demand for silver in China and India will ultimately drive up the price of silver but the market's volatility and the shorts will stop silver in it's tracks. Let's take SLW, for example. Why buy this now when it is going lower? Analysts have continued to raise expectations from $7 to $10 per share, however, the stock won't move. Until the uptick rule is enforced, the market is a playground for "get rich quick" scumbags and a true "investor" won't see a return on his/her investment.
At this stage of the game, I would much rather invest my money into something tangible, such as real estate.

Apr 21 12:40 PM