Sizzling Silver Offering a Golden Opportunity

by: World Market Pulse

What goes up comes down but what goes down can also bounce back and economic destinies of nations are certainly one of the those fundamental things which can have a sine wave cycle of sorts. As the world faces economic heat and growing recession, most investors have been seeking safer ways to park their capital and hence the mad rush for gold in recent times. Even though the gold story is quite bullish and would continue to remain for some time, one fundamental metal which one must keep an eye on is Gold's poor cousin Silver especially if you are an optimist and a believer in the economic recovery theory. Even though the recovery of global economies may take some time to materialize, the most significant returns can be expected from base metals and energy in the coming years.

Rising Gold-Silver Ratio: The gold-to-silver ratio, which tracks how many ounces of silver are needed to buy one ounce of gold, has gone from 64 to about 60 in a month, and the spread is expected to keep narrowing.

Silver Market Trends: Spot silver prices rose 48 percent in 2009, and have already risen more than 38 percent this year, while spot gold prices are up around 23 percent. With the US Federal Reserve signaling that the US economy many need more stimulus, and confidence in paper currencies dipping, investors shouldn't worry that they have missed the boat on silver. In fact, analysts see plenty of space for silver to continue to gain on gold. According to Bart Melek, a senior economist at BMO Capital Markets, sees spot silver trading at an average of $23 in 2011, up from a estimated average of $18.91 in 2010.

The Uniqueness Of Silver: Silver is a unique metal for investors because only about 30 percent of production comes from actual silver mines. About half the demand for the metal is industrial, where it is primarily used in electronics. Silver production is expected to be around 23,000 MT this year, with an additional 7,000 MT from recovered scrap.

Understanding The Declining Dollar's Impact on Metals: The broad weakness in the dollar against other major currencies after the release of the minutes of the US Federal Reserve's last policy meeting helped whet investor appetite for dollar-denominated commodities, which become cheaper for non-US investors as the greenback declines. The movement in the dollar index however has a lot of effect on commodities and other currencies, even if it does not replicate the action of the index but the USD needs some sort of a trigger mechanism to come out of its negative sluggish cycle.

Base Metals Projections: World Market Pulse analysts believe that new investor interest in products such as commodities exchange-traded funds will also boost base metals demand and prices from 2010 until 2015. Analysts at consultancy CRU Group are also bullish as evident from its 2014 against 2010 commodity price performance forecast thermometer, CRU sees gains of 15 percent or more for copper and tin. During this same period, the group also sees 0-15 percent gains for lead, zinc and aluminium, and 0-10 percent for nickel.

Silver Projections: With the US Federal Reserve signaling that the US economy many need more stimulus, and confidence in paper currencies dipping, investors shouldn't worry that they have missed the boat on silver. In fact, analysts see plenty of space for silver to continue to gain on gold. According to Bart Melek, a senior economist at BMO Capital Markets, sees spot silver trading at an average of $23 in 2011, up from a estimated average of $18.91 in 2010.

Silver Demand And Prices

With prices of Gold already reaching substantial highs, the silver metal has been sizzling with activity causing lots of buzz in the industry making investors quite excited. Testimony to that is the fact that total silver ETF inflows increased 50% in 2009 to nearly 400 million ounces as new funds were launched in Australia and the United States. Silver coins and medals fabrication also increased by an impressive 21% to post a new record of 78.7 million ounces last year, mainly driven by a jump in retail demand in the United States.

Silver is quickly becoming the preferred investment to safeguard against a fragile global economy. And as investment demand continues to grow, silver prices will march higher. The time to invest in silver is now.

Options to Invest in Silver

Silver Bullion: The simplest and most direct way to invest in silver is to own the physical metal. Silver bullion is generally sold in two forms, bars and coins. Silver bars vary in weight from one ounce to over 1,000 ounces. Also many countries including the United States, Canada, Austria, and Mexico offer mint official legal tender silver coins with 0.999 purity.

Disadvantages: Both silver bars and silver coins are priced according to their weight and purity, but they always carry a premium above spot silver prices and yields no interest.

Silver Exchange-Traded Funds (ETFs): For investors who seek exposure to the physical silver market, but have no desire to possess the metal or pay direct insurance, assay, and storage costs, ETFs offer an alternative. Some of the major Silver ETFs are as follows:

The iShares Silver Trust (NYSEARCA:SLV): This ETF is designed to track the spot price of silver bullion. iShares Silver Trust is the world's largest silver-backed exchange-traded fund and has increased its holdings by 40% to over 300 million ounces last year. The fund has increased silver holdings 1,318% since the ETF was launched in April 2006.

SLV Performance

52 Week Return: 23.48%

YTD Return: 8.41%

1 Week Return: 4.49%

2 Week Return: 3.58%

4 Week Return: 1.59%

13 Week Return: 4.79%

26 Week Return: 11.57%

Expense Ratio: 0.50%

The PowerShares DB Silver Fund (NYSEARCA:DBS): The Index is a rules-based index composed of futures contracts on silver and is intended to reflect the performance of silver.

DBS Performance

52 Week Return: 22.31%

YTD Return: 7.15%

1 Week Return: 3.83%

2 Week Return: 3.84%

4 Week Return: 0.69%

13 Week Return: 4.27%

26 Week Return: 10.68%

Expense Ratio: 0.50%

Silver Miners ETF (NYSEARCA:SIL): The index is designed to reflect the performance of the silver mining industry. It is comprised of common stocks, ADRs and GDRs of selected companies globally that are actively engaged in some aspect of the silver mining industry such as silver mining, refining or exploration. The fund has 24.90% holdings in Mexico.

SIL Top Ten Holdings

1. Silver Wheaton Corporation (NYSE:SLW): 14.34%

2. Fresnillo PLC (OTC:FRES): 13.82%

3. Pan American Silver Corporation (NASDAQ:PAAS): 12.36%

4. Industrias Penoles SAB de CV: 10.56%

5. JSC Polymetal GDR (PMTL): 5.08%

6. Coeur D'Alene Mines Corporation (NYSE:CDE): 4.59%

7. Silver Standard Resources, Inc. (NASDAQ:SSRI): 4.48%

8. Hochschild Mining PLC (HOC): 4.40%

9. Hecla Mining Company (NYSE:HL): 4.39%

10. Silvercorp Metals Inc. (SVM): 4.33%

Expense Ratio: 0.65%

The ProShares Ultra Silver (NYSEARCA:AGQ): ProShares Ultra Silver seeks daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London.

AGQ Performance

52 Week Return: 27.75%

YTD Return: 6.50%

1 Week Return: 8.61%

2 Week Return: 6.94%

4 Week Return: 2.05%

13 Week Return: 5.50%

26 Week Return: 14.47%

Expense Ratio: 0.95%

Disadvantages of Silver ETFs: ETFs issuing companies applying management fees to the certificate, the certificate's value diminishes over time as the silver represented is sold off in small quantities.

In the United States, revenue from the sale of a silver ETF is treated as a sale of the underlying commodity. Thus, it's taxed at the 28% capital gains rate rather than the 15% long-term capital gains rate for non-collectibles.

Silver Stocks: An indirect way to invest in Silver is by investing in the companies that pull the metal from the ground. Because mining companies that mine silver usually mine other metals alongside it, the share price of such an outfit is rarely dependent on the price of silver alone.

Major Publicly Traded Silver Producers on NYSE Include:

Silver Wheaton (SLW): Silver Wheaton Corp. (Silver Wheaton) is a mining company, which generates its revenue primarily from the sale of silver. As of December 31, 2009, the Company had entered into 13 long-term silver purchase agreements and two long-term precious metal purchase agreements.# Mkt cap 6.70B

# P/E 44.22

Silver Standard Resources, Inc (SSRI): Silver Standard Resources Inc. is a silver resource company that assembled a portfolio of silver-dominant projects located in seven countries in the Americas and Australia.

# Mkt cap 1.34B

Coeur D Alene Mines Corporation (CDE): Coeur d’Alene Mines Corporation (Coeur) is a silver producer with gold assets located in North America.

# Mkt cap 1.41B

Hecla Mining (HL): Hecla Mining Company is engaged in discovering, acquiring, developing, producing, and marketing silver, gold, lead and zinc.

# Mkt cap 1.31B

# P/E 15.95

Silvercorp Metals (SVM): Silvercorp Metals Inc. (Silvercorp) is a silver producing company. During the fiscal year ended March 31, 2010 (fiscal 2010), Silvercorp mined 406,754 MT of ore. In fiscal 2010, the Company produced and sold 4.6 million ounces of silver, 62.4 million pounds of lead and 14.7 million pounds of zinc.

# Mkt cap 1.15B

# P/E 29.72

Top 10 Silver Producing Companies in 2009

(millions of ounces)

Company Country Output

1. BHP Billiton Australia 42.0

2. KGHM Polska Miedz Poland 38.7

3. Fresnillo plc Mexico 37.9

4. Pan American Silver Canada 23.0

5. Cia. Minera Volcan Peru 21.2

6. Hochschild Mining Peru 18.8

7. Coeur d'Alene Mines Corp. USA 17.7

8. Sumitomo Corp. Bolivia 17.6

9. JSC Polymetal Russia 17.3

10. Kazakhmys plc Kazakhstan 16.9

4: Silver Futures: Silver is a commodity that is traded 24 hours a day in the world’s market centers – London, Zurich, New York, Chicago and Hong Kong. The London market has a "fix" which offers the chance to buy or sell silver at a single price. The fix begins at 12:15 p.m. and is a balancing exercise; the price is fixed at the point at which all the members of the "Fixing" can balance their own, plus clients’, buying and selling orders. Although London remains the true center of the physical silver trade for most of the world, the most significant paper contracts trading market for silver in the United States is the COMEX division of the New York Mercantile Exchange. Spot prices for silver are determined by levels prevailing at the COMEX; and although there is no equivalent to the London fix, Handy & Harman, a precious metals company, also publishes a price at noon each working day.

Silver Futures Contracts At COMEX: * Ticker Symbol: SI

* Exchange: NYMEX

* Trading Hours: 8:25 AM until 1:25 PM EST.

* Contract Size: 5,000 troy ounces

* Contract Months: Mar, May, Jul, Sep, Dec.

* Price Quote: price ounce. Ex $11.25 per ounce

* Tick Size: one-half cent (0.5¢ or $0.005) per troy ounce, equivalent to $25.00 per contract.

Silver Futures Contracts At CBOT:

Symbol ZI

Electronic Platform Hours: 7:16 PM to 5:00 PM Sunday-Friday

Delivery Months: The first 3 consecutive months: the following two months: F, H, K, and U within the next 23 months: N and Z within the next 60 months

Contract Size: 5,000 Troy oz.

Minimum Tick: $.001 per oz ($5.00 /contract)

Settlement Form: Physical

Disclosure: No positions