Is this the Great Silver Buying Opportunity?

June 25, 2013 at 10:11


Some pundits will tell you the commodities bull-run is over, but we believe those analysts have grossly misinterpreted recent events.

And they have missed some extremely strong fundamentals regarding silver which makes the metal a fantastic investment today.

In fact, not only is this a good time to get your hands on silver… Recent events have made this the best time in history to buy silver.

So here’s why you should take advantage of your last chance to buy it under $20/ounce.┬áIt Could Hit $60…

All bull markets go through periods of consolidations and corrections. Silver is no exception.

In fact, because the global silver market is relatively small, silver prices tend to be more volatile.

The thrashing we witnessed in silver this past year is a testament to that fact. But volatility works both ways, so when silver rises, its price can virtually explode higher.

That’s exactly what happened in April 2011, when silver prices rose by 170% in the space of just 7 months. No wonder we call investing in silver like “gold on steroids.”

The thing you need to know is, it’s looking like the silver market is on the cusp of doing the same thing all over again. According to our research, the next stop could be $40 by year’s end, and $60 in 2014.

These five catalysts will launch the next silver rally.

Silver Catalyst No. 1:Relentless Buying of Physical Silver

Despite the drubbing that silver has taken the last six months, there’s one aspect of the market that most observers are simply ignoring: The physical silver market.

While gold and silver prices took a pounding, people were not running to unload their silver-quite the opposite. In fact, savvy investors were flocking to buy physical silver.

Even as silver prices dropped, buyers stepped up, and supply became so scarce, premiums nearly tripled to 18% above spot prices. Essentially, virtually no one was selling, yet a lot of buyers recognized that silver was “on sale” and decided to stock up.

In the first six months of 2013, the U.S. Mint sold more than 24 million ounces of silver coins.

That’s the first time ever the Mint has sold this many coins so early in the year, setting a record in the 27-year history of the series.

Coin dealers across the U.S. have been regularly selling out of their inventories, desperate to get new allocations.

Silver also has a wide array of industrial uses.

Industries from electronics to medicine are taking advantage of silver’s unique physical features such as its combination of strength and flexibility, natural anti-bacterial properties, and being a highly efficient electrical and thermal conductor.

Rising industrial demand for silver is expected to be fueled in part by growth in the automotive sector and a recovery in the housing and construction industries. In addition, silver is used in electronic gadgets found in many vehicles today, as well as in lighting, batteries and even solar energy systems.

Another factor driving industrial use of silver higher is the demand for ethylene oxide. This chemical intermediary is produced by direct oxidation of ethylene in the presence of a silver oxide catalyst. It is critical in the production of many products, including detergents, plastics, solvents, thickeners and a number of organic chemicals.

But the biggest boon to silver’s industrial use will come from emerging markets.

As living standards improve in those economies, electronics, construction equipment, water purification and sewage treatment systems, which all require silver, will become increasingly needed, affordable, and sought after.

With investors buying 56 times more physical silver than physical gold, Main Street is setting the pace, while Wall Street is either oblivious to the trend or deceitfully trying to keep prices down.

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Silver Catalyst No. 2: Silver ETFs Bulking Up

As smart retail investors have been soaking up physical silver, so have the silver exchange traded funds (ETFs).

In the first quarter of 2013, over 140 tons of gold was sold by physically backed gold ETFs. But remarkably, silver ETFs bucked that trend.

In that same slice of time, the world’s silver ETFs actually added 20 million ounces to their vaults. That’s nearly $600 million worth of silver being bought within just 3 months, all while silver prices were steadily declining.

Silver ETF shareholders are a combination of both retail and institutional investors. But 20 million ounces flowing in is a clear sign of recognizing value and steady hands.

This kind of action is especially revealing. It signals that once an ounce of physical silver is bought, its owners have “sticky” hands, and they are very reluctant to sell.

Silver Catalyst No. 3:Highly Bearish Speculator Sentiment

Investor sentiment is often a great indicator – a great contrarian indicator, that is.

That’s because the herd usually does the right thing at exactly the wrong time. It’s what we call the Dumb Money.

Silver contracts are traded on futures exchanges. And one of the most useful gauges of investor sentiment is something called the Commitment of Traders Report (COT), produced weekly by the Commodity Futures Trading Commission.

When the speculators’ (dumb money) net short silver positions reach a major high, it’s nearly always a perfect contrarian signal. That’s typically when the silver price is either at or very near a major low.

It’s exactly how things played out in 1997, 2000, 2001, and 2005. Each and every one of those instances marked exact or near-term lows from which silver prices either quickly shot higher, or began an extended rally.

And in June large speculators’ silver short positions reached a record high. That’s an extremely bullish indicator for silver prices ahead.

Silver Driver No. 4: Obama’s Back

The President has been very good for silver prices. In fact, he was so good he helped make silver the best-performing major financial asset during his first term, returning 214%.

With Obama here for a second term, and Federal Reserve Chairman Ben Bernanke still in place and relying heavily on the printing press, I’m fully expecting a repeat performance. The billions, make that trillions, which have been pumped into the economy the last four years will continue to send silver higher. Thanks, guys, for more of the same.

Silver Catalyst No. 5: Threat of Government Theft

Back in 1933, President Roosevelt seized privately held gold by signing into law Executive Order 6102.

FDR’s official motive was to “provide relief in the existing national emergency in banking, and for other purposes…”

That single act criminalized the “hoarding” of gold by the public, giving people less than a month to turn in their gold.

Fast forward to 2013, and 80 years have gone by. Today, the 1933 gold confiscation is no longer common knowledge. But students of history realize the risk that a similar threat may surface again.

Interestingly, silver was not confiscated by Executive Order 6102. Now, we can’t know if there will ever again be anything akin to this Oval Office edict – much less what it might cover and might say. But going on the past, and considering the size of the silver market relative to gold, silver could be a way to own a precious metal that just might sidestep any risk of future confiscation.

Silver is much less widely owned than gold, and that could help keep it off of the official radar.

Silver Ultimately Peaks at $250

The bull market in silver is far from over. Given how silver has reacted after a strong selloff in the past, we could easily see the precious metal regain the $40 level by year’s end. And in 2014, $60 silver is looking very attainable.

If the 1970s bull market in silver is any indication, we could see silver reach $125 by the time this bull market finally peaks.

But this time around the fundamental drivers are so entrenched, and global demand is so powerful, we could actually see silver at double that level, finally reaching $250 per ounce.

EWe’re not the only ones thinking silver has much, much higher to go.

Eric Sprott, the billionaire Canadian resource guru, recently said:

“I think silver will be the investment of this decade whereas gold was the investment of the last decade. Silver will outperform gold. I believe silver will trade down to a 16:1 ratio to gold…Your return will be 300% more. If you have the patience and can stomach the volatility, I think silver will by far be the better investment going forward.”

In a minute I’m going to show you a way to get twice the gains that just holding silver can bring you. But first, in case you want to play silver straight up…

How to Buy Silver

Like gold, silver investments can be made in a variety of forms. Let’s take a look at some of the most popular.

Physical Silver: Physical silver can be purchased in a variety of sizes and weights, which determines its price. Most typical are 1.0 ounce silver coins, like the Austrian Silver Philharmonic, the American Silver Eagle, and the Canadian Silver Maple.

Their prices vary slightly due to differences in silver purity, with the Silver Maple being the highest at 99.99% pure. You’ll pay about a 15% premium over the silver price for coins due to the cost of fabricating them.

Another popular option is the 100-ounce silver bar, which commands a 5% premium over the spot price of silver.

These coins and bars are essentially bought for their silver content and not as collectibles. If you’re looking to build a silver stash – either large or small – bullion dealers may be the easiest way for you to do so. But do your homework first, and check them out before you buy. Also, avoid paying more than the premiums we noted above for either coins or bars.

In an “allocated” situation, your coins or bars are removed from the mint’s operating inventory, and placed in the Perth Mint Depository vault with your own account number. Allocated metals are not part of the mint’s balance sheet, so you will pay storage fees. The government of the state of Western Australia guarantees the certificate.

Minimums are $10,000 for your initial PMC purchase, with subsequent purchases at the $5,000 minimum level. If you hold your coins, bars, and bullion on an unallocated basis, they can be converted into specific coins or bars and you can then take delivery, if you wish. The Perth Mint Certificate program is a solid way to gain international diversification for your silver holdings.

Exchange-Traded Funds and Certificates: If you’re a conservative investor by nature, an ETF or similar type of fund may be the way to go.

For that type of investment, look at the Sprott Physical Silver Trust (NYSE: PSLV). U.S. investors will like it, too, since the physical bullion that backs the fund is held in Canada – away from the potentially grasping hands of Washington, but still in a market that protects property rights and that’s easy for you to physically access.

A simple way to acquire a claim on silver is to buy units of the iShares Silver Trust ETF. With some $5.5 billion in assets, SLV is the world’s largest silver-backed ETF, using JPMorgan Chase in London as its custodian. SLV shares, which represent approximately 1.0 silver ounce each, are easy to buy and sell through your brokerage account.

But my favorite “silver-only” fund is the ETFS Physical Silver Shares. Issuer ETF Securities Ltd. is one of the largest ETF providers in Europe, with some $16 billion under management. Each unit is about the equivalent of 1.0 ounces of silver in U.S. dollars. As well, it seems to trade with a net asset value that boasts almost no premium or discount, and management fees are reasonably low, around 0.30% annually. The company indicates that the physical silver that backs the units is held in a vault in London. Finally, in all your purchases, pay attention to costs- whether we’re talking about fund management fees or dealer premiums in excess of a metal’s market price- those costs can negate any benefit you’ve tried to establish.

Double Your Move On Silver

The ProShares Ultra Silver ETF gives you a way to get twice the gains that just holding silver can bring you.

And thanks to compounding, it can get even better than that- way better.

It’s also really simple to trade.

There’s no need to open a futures trading account, put up a bunch of margin, or take on a lot of risk to get this leverage.

You see, the ProShares Ultra Silver ETF is structured to provide double the returns of the silver price on a daily basis, net of fees and expenses.

And the leverage is built in. That means you don’t invest on margin, and you don’t need to worry about margin calls. (That’s all internally managed and packaged within the units.) You just decide how much you want to invest.

Remember that this ETF will move both up and down by twice as much as silver on any given day. So you do need to consider that, while the silver price can be volatile, AGQ can move twice as fast.

Yet as silver resumes its bull-run and moves higher, AGQ becomes a great opportunity to leverage those gains.

Just look at the performance of AGQ compared with iShares Silver Trust , between January 2009 and silver’s peak in April 2011.

During that period SLV gained handsomely, moving from $11.41 to $46.90 to return 311%.

AGQ, of course did much better. It soared from $16 all the way to $180, providing a 1,025% gain to shareholders.

That’s the beauty of leverage and compounding combined. Just remember, it cuts both ways.

Like many things in life, AGQ makes sense in moderation. And still, it can make a significant impact to your portfolio’s returns.