Now is the time to buy silver. You can buy physical silver coins at online brokerages such as APMEX.COM, or you can buy a silver ETF, such as PSLV or SLV. The advantages of owning physical are quite complex, but generally involve a loss of faith in the banking system and paper financial assets. The advantages of paper silver include ease of storage, trading and tax efficiency. In my opinion, both should be owned and used to optimize the robustness, diversity and tax efficiency of an investment portfolio.
Why I like Silver right now?
Gold/Silver Ratio is near an extreme. This ratio demonstrates a lack of investor interest in the monetary metals when the ratio is above 70. It demonstrates a mania to participate in the monetary metals when the ratio is below 35. Each time the gold/silver ratio has gone above 75, it has been an acceptable time to buy silver, gold, or silver and gold stocks. Each time the ratio went below 35, it has been an excellent opportunity to sell precious metals and their related investments.
In the above charts, you can see that silver and gold bottomed at the point where the Gold/Silver ratio peaked above 75. Silver outperforms gold after this point. Buying silver in the gold circled areas and selling in the red circled area would be the same as buying when Gold/Silver ratio is above 75 and selling when it goes below 35. Basically you want to load up after silver has underperformed gold over a protracted period and you want to sell when silver has outperformed gold over a protracted period. The gold/silver ratio is the best way I've found to measure the extreme turning points in the market.
The reason I suggest buying silver at this time, rather than gold or precious metals stocks, is due to the ease of buying silver and the lack of management risks, coupled with the significant upside potential. Silver has the best upside potential with minimal risk of loss over the long run. The stocks have implementation, management, country and geologic risks involved, and gold is great, but will not go up in value as much as silver and has not sold off as significantly recently.
COT (Commitment of Traders) Reports are near an extreme, favoring silver. The commercial shorts in the silver industry include silver miners, they sell silver to run their business, and thus are always short the market to some degree. Recently the commercial traders (the people who trade silver for a living, and produce silver) have reduced their silver shorts to the least in two years. This indicates the most knowledgible participants in the market are holding back from selling at these prices. Small speculators (who try to get rich quick using leverage, but generally lose money) have significantly reduced their positions in silver after the recent decline in prices, this is another buy signal.
Silver has sold off significantly lately, including the recent flash-crash. This has flushed out all the leveraged participants and it is now the best time to buy in the last year. The recent 'flash-crash' in silver demonstrates why it is important not to use leverage or stop loss orders. Buy physical silver or buy a silver ETF and do not use stop loss orders, otherwise you will not participate in the eventual price increase in silver. The flash crash has spooked many investors, but the price declines, Silver/Gold ratio, COT reports and seasonality (discussed below) all indicate now is the time to buy.
Tahoe Resources recently had their Escobal silver mine suspended from production. This is one of the largest silver mines in the world. This did not seem to impact the silver price. A significant decrease in silver supply to the market will have an impact at some point in the future. I view this as a positive factor for the silver price.
Silver has a seasonal pattern that many traders use to position their trade timing. I generally focus on other things, but seasonality is a real thing and there is statistical evidence that indicates June-August is a good time to be a buyer of silver. This is another factor that makes silver a compelling buy at this time. (This chart was copied from 321gold, who borrowed it from Moore Research.)
Final comment before signing off. I've noticed silver coin premiums have increased significantly over the last two weeks. Premiums were as low as .39-49 prior to the flash-crash. Now even generic silver is trading around $1 premium to spot and it increases significantly from that point. These physical premiums are still quite low compared to a few years ago. Get your silver while the getting is good!
Disclosure: I am/we are long SILVER.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: LONG SPROTT- SPOXF, PHYSICAL SILVER