Every Economic Cloud Has a Silver Lining

After the recent run in the stock market from March 2009 to August 2009, many investors are taking some profits and waiting to see if the leading indicators continue to improve or if they slide to the downside. Will manufacturing, retail, housing, and financials continue to see improvements? It looks like the economy and the stock market could go either way in the near term. So, if you’re a trader or a long term investor, what looks promising right now? How about the low priced commodity, silver.

I would choose silver over gold for the simple reason that it’s much cheaper than gold. Furthermore as silver rises along with gold, the percentage gains are significantly higher with silver. For example, when gold rose from $900 to $1000 investors enjoyed a nice 11% gain while silver investors enjoyed a nicer 23% gain with just a 3 dollar rise $13 to $16.

With the value of the dollar falling, and large inflation risk on the horizon due to the government’s unprecedented money printing machine, commodities will rise over time. Silver should be a key player in this commodity rise. Gold is currently trading more than 60 times time the price of silver. Historically, gold trades 15 times higher than silver. I’m not saying that silver will definitely return to price in at 15 times below the price of gold, but things do tend to revert to the mean over the long term.

Silver also has its usefulness beyond jewelry and silverware. Its characteristics include: strength, reflectivity, malleability and ductility, electrical and thermal conductivity, antimicrobial, and the ability to endure extreme temperature changes. Silver is used in mirrors, electrical contacts/conductors, photographic film, and disinfectants. As the economy eventually improves, so will the various uses of silver, thus contributing to a higher demand . However, I think its popularity as a moderately priced hedge against inflation will drive its demand more than its functional applications.

The purest play is to purchase the physical silver. If you prefer to trade it in stock form than SLV is the next purest play. Other stock ideas include: SLW, PAAS, AGQ, AEM, and AAUK.

Disclosure: No positions

Comments

[pungent:]

Although I am a silver investor, this was a fairly useless article. If, as you state, your primary reason for buying silver is "for the simple reason that it’s much cheaper than gold", may I suggest copper which is SERIOUSLY cheaper than gold. Or perhaps aluminum? I think I may reasonably summarize this article as "Hey gang, buy silver 'cuz I am!!"

Sep 09 09:42 AM

[HATEFEEBAY:]

I'm a silver bug for a reason and although the article could be a bit better with all due respect, silver is the place to be. I perfect SLW and the physical silver itself. SLW is a strong long term buy for me hands down. I'm an active trader and a Wharton School alumni and I am 6 digits in SLW ;-)

Sep 10 09:13 AM

[David Zanoni:]

The article was no more useless than your comment. Where are your articles? I find it funny that it's the non-contributors who make the most negative non-productive comments. Perhaps it's because your articles were rejected.

On Sep 09 09:42 AM pungent wrote:

> Although I am a silver investor, this was a fairly useless article.
> If, as you state, your primary reason for buying silver is "for the
> simple reason that it’s much cheaper than gold", may I suggest copper
> which is SERIOUSLY cheaper than gold. Or perhaps aluminum? I think
> I may reasonably summarize this article as "Hey gang, buy silver
> 'cuz I am!!"

Sep 10 04:31 PM

[David Zanoni:]

The main point that I meant to emphasize is that silver rises much higher on a percentage basis in relation to gold. That is the primary reason to buy silver over gold.

Sep 16 08:44 PM