Why Silver May Currently Be One Of The Best Long-Term Investments

Includes: AGQ, PSLV, SLV
by: George Maniere

The extraordinarily bullish fundamentals of the silver market suggest, at current prices, that investing in silver could offer investors one of the single best long-term investments today. It is no secret that both gold and silver are recognized as a store of value. What is not so well known is that while gold has demonstrated a solid trend of price appreciation since 2001, more than quintupling in price, the price of silver has recently outperformed that of gold. As a collector/ investor for the last fifty years the last few years have been exciting as I watch my coin collection grow exponentially in value.

In fact, between January 4, 2010 and June 30, 2011, the price of gold increased approximately 34% while the price of silver increased more than 100%. In addition, there is a compelling argument for silver investing because the economic and monetary fundamentals in place today are even more bullish than the conditions of the 1970s when the silver price exceeded $50 per ounce. Yet today's market prices, at well below the $50 level, are a mere fraction of levels projected by silver industry experts for the future.

Silver has attracted man’s fascination for many thousands of years. Ancient civilizations found silver deposits plentiful on or near the earth’s surface. Relics of these civilizations include jewelry, religious artifacts, and food vessels formed from the durable, malleable metal. This metal took on near mystical qualities in marking important historical milestones throughout the ages, and served as a medium of exchange. The Mesopotamian merchants were doing just that as early as 700 BC. In 1792, silver assumed a key role in the United States monetary system when Congress based the currency on the silver dollar, and its fixed relationship to gold. Silver was used for the nation’s coinage until its use was discontinued in 1965.

The beginning of the 20th century marked an important economic function for silver. Silver was no longer just a means of currency. It became an essential metal in industrial usage. Today, silver is sought as both a valuable and practical industrial commodity, as well as an appealing investment precious metal. Many countries now issue silver bullion coins, among them the Unites States, Canada and Mexico. Private issue silver bullion is also available from select private mints.

Gold is for wealth preservation and silver is for bartering. If we are talking about protecting wealth in the amount of several million dollars then a good spread to own in precious metals would be 80% gold and 20% silver. If we are talking about a “Mad Max” scenario where we are trying to set ourselves up for a black market bartering system then a good spread would be 75% silver and 25% gold. I will leave it to you to determine what would be an appropriate ratio for you based on the assets you are trying to protect.

There is a unique set of circumstances that have come together at the same time for precious metals (gold and silver in particular). A number of factors have contributed to the major move in spot prices. These include a declining U.S. dollar, the sovereign debt crisis in Europe, huge increases in the global money supply, interest rates at record lows, the U.S. sovereign debt downgrade, stagnant supplies of precious metals, and consistent demand for the commodities.

I think it will take some kind of catalyst for the spot price of gold to move above $2,000 an ounce and stay there. It’s likely that this catalyst will be related to sovereign debt, which is an issue that hasn’t gone away. All that’s happened so far is that European sovereign debt has been bailed out with another round of new debts. It’s a vicious cycle of debt that will probably be responsible for the breakup of the euro currency some time this decade.

A look at the chart above will show that silver has put in seven confirmed bottoms along the trend line. The third bottom was when silver corrected violently in the first week of May after having gone parabolic in April. Since then it has put in three months of consolidation and tried to break out in mid August and ran into a firm level of resistance at $44.00. Since then it bounced on the trendline and seems ready to retest the $44.00 resistance level. Once it breaks this resistance level it will have the $50.00 level of resistance to break through.

The buying of silver ETFs like SLV, PSLV, and AGQ jumped this week showing an increase in investor confidence in the precious metal. I believe that many analysts are still cautious of silver as the people that were burned when they bought at the top in April will not soon forgive and forget. They will be looking for a chance to get out even. I believe that this will set up a strong level of resistance at $50.00 but once silver breaks this level I expect it to run to the $55.00 level by year’s end. I must say that there are some very smart people that have told me that my target price of $55.00 by year’s end is too low and once it breaks the $50.00 level it will run up to $100.00 an ounce within 6 months.

This should be proof that gold is not the only precious metal out there worth looking at as an investment. Silver has also been long used as a basis for monetary systems and is much cheaper than gold, at around $42 an ounce. Silver for the most part stayed put during this latest historical rise in the price of gold.

The reason gold is being bid up so high has to do with the world’s growing distrust of the financial system and the growing possibility of extreme or hyper inflation of the US dollar and other major currencies. This is all largely due to the Fed manipulating interest rates to zero and the continued printing of fiat money.

Meanwhile, investors have once again become very attracted to silver coins, particularly the 2011 Silver American Eagle which sold out at the mint in one day. I believe that the chart above shows silver progressing in a very bullish fashion and once it breaks the resistance level it will have a long profitable run.

Disclosure: I am long ALV, PSLV, AGQ, SLV.

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