Silver is frequently referred to as poor man's gold, and
historically it's taken a back seat to its yellow cousin. But
silver has taken center stage in recent months as the price per
ounce soared to $30.
That's because like gold, silver is hitting multi-decade record
prices. Typically the two metals trade in tandem, and with some
analysts expecting gold to trend closer to $2,000 an ounce the
precious metal rally looks like it may still have legs.
For years now investors have sought safe haven from the ravages
of inflation by buying precious metals. Gold grabs the headlines,
but I believe that the past months have shown that it's time to
seriously consider silver as the new glamour metal.
***Five years ago, you could buy silver for $7 an ounce. Since
then, the price has quadrupled. More recently, over the past three
and a half months, silver has skyrocketed from $18 an ounce to a
Dec. 7 high of $30.50. That's an impressive 70 percent increase
over an extremely short period of time.
Silver demand is rising, both for industrial purposes (solar
cells use a lot of silver) and for investment purposes. Silver is a
great multi-tasking metal. Although the demand from photography has
dropped in the digital age, other industrial uses have taken its
place, not to mention the need in making coins, jewelry and art.
But predictions are that production won't match rising demand.
And the regulatory winds of change are blowing, with the
Commodities Futures Trading Commission stepping up its influence
Precious metals trading can be frightening at times, with
significant ups and downs in the spot market. For those who don't
have the stomach for silver bullion's roller coaster market, there
is a better way to play the trend - silver mining companies.
***Peter Barnes, CEO of
Silver Wheaton (
one of the larger silver miners, recently said in
this Reuters story
that the metal could hit $50 in the next three to four years. From
the Dec. 7 high of $30.50, that represents a potential 62 percent
Mining companies typically see their stocks rise more than the
price of silver because as the price of the metal increases, their
margins rise even more. That's because costs are usually fixed,
although they do increase production to meet demand. That can cause
a rise in costs, but even with a moderate bump these companies tend
to book huge profits in bull markets for precious metals. And
shareholders book huge gains.
One of the interesting stories surrounding silver right now is
putting pressure on the huge investment bank
JPMorgan Chase (
Rumors are swirling that JPMorgan is feeling the pressure of its
short position in silver. In fact, an investment columnist in the
The Guardian, claimed
on December 2 that Morgan is sitting on a 3.3-billion-ounce
short position. The columnist went on to say there's an Internet
movement to get people to buy silver coins, spike up demand, and in
turn crash JPMorgan.
A CFTC report showed that as of November 30, the four largest
traders shorting silver held 37.9 percent of the contracts. That's
a pretty significant short interest, and if silver trends higher
these shorts will likely have to cover part of their positions or
risk even greater losses. That could propel the 'poor man's gold'
I recommend that investors consider silver mining stocks rather
than bullion. What I like about mining stocks is that as the price
of silver goes up, their cost structures remain the same,
increasing their profitability. Since mid-July, one silver mining
stock in the
Cap Investor PRO
portfolio has posted an impressive 100 percent gain.
While the shares of big companies like Silver Wheaton and
Pan American Silver Corp. (Nasdaq: PAAS)
certainly offer upside potential, I prefer the small cap space for
even bigger gains.
: I recently put together a
Special Report: Sierra Madre Silver Profits
that features three silver mining companies, all in different
stages of development. With silver rising above $27 an ounce, these
stocks are great buys right now. Get your copy of this
special opportunity silver report here.