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Another Reason Silver Prices Could Roar Higher

By Matt Badiali, editor, S&A Resource Report
Saturday, December 3, 2011

Silver is an amazing metal... which is why it's likely to soar over the coming years...
 
You see, silver has more than 10,000 uses. It's one of the world's best conductors of heat and electricity. Inventors filed more patents on silver uses than any other precious metal in the world. And when silver is used for most industrial and technological purposes, it is used up forever... It simply costs too much to try to recycle the tiny bit of silver from every cell phone or casino chip.
 
I'm not saying industry is going to use up all the world's silver. That simply can't happen. But scarcity is a real issue.
 
Our rapid consumption of silver leaves very little to meet any uptick in demand from investors. A spike in interest will send prices spiraling higher...
 
Here's a breakdown of the silver market. The table below shows the percentage of the total amount of silver consumed by each category over the past four years...
 
Silver Supply Consumed By Sector
 
2007
2008
2009
2010
Industry
53%
54%
45%
49%
Photography
13%
11%
9%
7%
Jewelry
18%
17%
18%
17%
Silverware
6%
6%
7%
5%
Coins and Medals
4%
7%
9%
10%
Surplus for Investing
6%
5%
12%
12%
Total
100%
100%
100%
100%
 
As you can see from the table above, only 12% of the silver supplied to the market made it to bullion in 2010. That means only a little more than 100 million ounces of silver became bullion for the entire investing world.
 
That's a tiny fraction to sop up all the investment interest in the world.
 
Of that silver, about 43 million ounces went to exchange-traded funds like the iShares Silver Trust (NYSE: SLV) and the Sprott Physical Silver Trust (NYSE: PSLV).
 
That means you could buy all the extra silver bullion for about $2 billion. We could buy all the surplus silver bullion from the last four years for about $10 billion.
 
That's the same as the market value of the iShares Silver Trust today. If you wanted to build another silver fund, you couldn't. There just isn't enough silver bullion out there to fill the order.
 
Even trying to amass that much physical silver would send the silver price soaring. It's a simple market fact... When there is more demand than supply, it drives the price up.
 
And the economic problems confronting Europe and the United States have increased interest in precious metals... Silver gained a colossal 174% from August 2010 to April 2011.
 
In May 2011, however, the price collapsed 31% in just four weeks. The bull market simply ran up too far, too fast... and the decline wiped out many highly leveraged silver traders.
 
As I showed you on Wednesday, this has temporarily dampened sentiment toward silver. The "big money" – commodity trading advisors, pool operators, and hedge funds – isn't interested in silver at all...
 
The current bottom in sentiment is a great signal for us to add silver positions. The big money will eventually return to silver... The economic forces (namely Western debt) driving people away from paper money and toward precious metals aren't going away any time soon.
 
As those big traders come back into the market, they have the capital to tie up all the excess silver production in the world. Remember... you could buy all the extra silver production over the last four years for less than $10 billion. Those traders could invest far more money than that.
 
When they do, the silver market will tighten up, and the price will roar upward. That's what we see EVERY TIME sentiment bottoms. When those big traders stop being bearish, they put enough money into silver to move its price. Sometimes it's 28%... Sometimes it's 405%... But it always goes up. (You can find the full story on that here.)
 
If gold and silver prices are nearly certain to rise over the next few years (and probably rise dramatically), the simplest way to play that trend is to buy bullion... real, hold-in-your-hand silver coins.
 
And I recommend everyone do just that... Buy some silver and store it away.
 
Good investing,
 
Matt Badiali




Further Reading:

With investor sentiment momentarily negative toward silver (and just beginning to turn back up), it's a great time to take a position in this long-term bull market. Read more here: How the "Big Money" Could Push Silver 54% Higher in 2012.
 
"I don't expect to make 800% returns," Brett Eversole writes. "But we could easily double our money through shares of this silver company over the next few years... even if the price of silver goes nowhere."

Market Notes


CHART OF THE WEEK: DON'T SAY WE DIDN'T WARN YOU ABOUT THESE CLUNKERS

Our chart of the week contains an important investment lesson... and a "we told you so."
 
While most financial publishers spend 100% of their ink telling folks what to buy, we believe in writing plenty about what NOT to buy. After all, the golden rule of investing and trading is "don't lose money." And there are a heck of a lot more ways to lose money out there than there are to make it.
 
Two of the top ways to lose money are popular "green energy" fund PBW and popular natural gas fund UNG. We regularly heap abuse on these two funds... and urge investors to avoid them. PBW is full of weak, risky businesses (read our full commentary here)... and UNG is a poorly constructed fund that owns a commodity America is glutted with (read our full commentary here).
 
In the chart below, you can see why we urge you to avoid these funds. It plots the performance of UNG (black line, down about 35%) alongside the performance of PBW (blue line, down 47%) in just the past year. Give us gold and dividend-payers... or anything other than these two dogs!
 
UNG and PBW Both Headed Downward Last Year 

Stat of the week

2.37%


Gain in the S&P 500 over the last 12 months, better than any other major country index.

In The Daily Crux



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