But first, let me show you the three catalysts that will propel silver much, much higher over the coming months and years…
Although gold possesses the greatest allure of precious metals, in the last several months, the price of silver has beaten gold by 2-to-1, rising by 25%, while gold has only been half as strong.
Now, historically, the price of silver per ounce has been equal to 1/16th of an ounce of gold. That means it took 16 ounces of silver to equal the value of a single gold ounce.
But over the past decade, gold has taken off, trading as high as 60-70 times the price of silver.
That is, until 2011. As silver prices rose to nearly $50 an ounce, the ratio fell to 30-1.
Right now you get 50 times more silver for your money than gold. In other words, if we look back at our historical gold-to-silver ratio of 16-1, silver would have to triple in price to even sniff where it should be in relation to gold.
For silver to “correct’ by returning to its long term silver/gold ratio of about 16, gold at $1,650 means silver should be priced above $100 an ounce already. And many experts believe that is exactly where we are heading.
Since 1687, the gold-to-silver ratio has ranged from 14.14 to 99.76.. Over this period, the average gold-to-silver ratio was 27.28 and today (Feb 8, 2013) the gold-to-silver ratio is 50.00.
Since 1687, the gold-to-silver ratio has ranged from 14.14 to 99.76.. Over this period, the average gold-to-silver ratio was 27.28 and today (Feb 8, 2013) the gold-to-silver ratio is 50.00.
Peter Krauth, one of the nation’s leading precious metal and global resource analysts, is even more bullish. He believes the long term target for gold is $5,000. He expects we’ll see the gold/silver ratio move down closer to 20 which would imply that silver eventually reaches $250 an ounce.
The fact is you’d be hard pressed to find anyone who believes that 50-to-1 will hold up much longer because it basically means silver is cheap compared to gold, which opens the door for investors to come in at a good price.
And there are signs that this is happening already.
Since the start of the decade, worldwide silver demand has increased dramatically. This is partly because, unlike gold, silver has many industrial uses.
For one thing, it’s the best conductor of electricity… on Earth.
Manufacturers use silver to make switches and fuses found in washing machines, computers, vacuum cleaners, drills, dryers and ovens. In addition, billions of silver-zinc batteries are manufactured every year for use in dozens of different electronic devices such as cell phones, cameras, remote control car keys, TVs and watches.
What’s more, the drive to make electronic devices like smart phones and tablet computers ever smaller is building an insatiable demand for silver. That’s because it provides more power with less heat.
When you make electronics smaller, they get hotter. So, engineers spend a lot of time designing tiny circuits that won’t get fried.
And that puts silver on the leading edge of a wide range of high tech, from medicine to electronics to solar power. In other words, silver cuts a huge swath through the entire tech value chain, including:
- Automobiles: every electrical action in a modern car is activated with silver-coated contacts.
- Medicine: silver is added to bandages and wound-dressings, catheters and other medical instruments and is a key part of technology behind X-rays.
- Printed circuit boards: silver lies along connecting paths of electronic circuits. In turn, these are found in everything from aircraft to TV receivers to smart phones.
- Water Filters: silver prevents the buildup of bacteria and algae.
There’s no doubt silver will play a big role in electronics that are in high demand all over the world. As the global economy improves, global consumers will want more smart phones, tablet computers, and tech-centric autos.
But there’s more to this “demand story” than just its industrial use.
Fact is, ordinary folks around the globe are buying silver like never before, especially in China and India where citizens are grabbing all the silver they can- simply as store of wealth.
According to Tom Lyons, the editor of ETF Trends, there’s been a huge increase in emerging market demand as more people move up to the middle class. Silver is an easier acquisition for them.
Lyons says the average investor no longer just puts 60% in stocks and 40% in bonds anymore.
The numbers back his claim…
According to data compiled by Bloomberg News, investors bought 797 tons of silver-backed exchange-traded products in 2012. They now hold 18,083 tons of silver, more than eight months of global mine output!
That brings total silver assets to just 2.9% below the record of 18,639 tons held in April 2011. Investors will likely buy another 500 tons in 2013, according to analysts at Barclays and Morgan Stanley.
Here’s the thing…
Since July of 2012, stockpiles of silver dropped 6.5%, posting a four-month low on August 8, 2012 according to COMEX.
In other words, silver owners aren’t selling, they’re hoarding.
Which brings us to the game-changing trigger event that could completely re-write the book on silver investing and send the shiny metal to all-time highs in 2013 and beyond.
As we speak, Hong Kong’s Chinese Gold & Silver Exchange Society (CGSE) is gearing up to dramatically expand its silver business by launching an electronic platform to trade the precious metal in Hong Kong dollars.
Furthermore, the CGSE is in initial talks with Chinese officials to set up a bonded warehouse on the mainland in a bid to boost business with exchanges and traders there, according to a recent report from Reuters.
“We are definitely interested in setting up warehouses in the mainland,” CGSE President Haywood Cheung told Reuters in an interview.
According to Reuters, China foreign exchanges cannot currently set up storage on the mainland, This policy, however, is expected to change soon. And this will open the door for the biggest pure silver market in the world.
Today the Chinese are the biggest consumers of silver on the planet – accounting for an astounding 23% of global silver consumption!
In fact, in 2010 silver demand rose 67% in China alone. And this number is expected to increase dramatically in the next several years.
With the CGSE now expanding into the mainland that number could soon pop off the charts.
The CGSE is already the leading physical gold marketplace in Asia.
Take a second to think how much of an impact this could very well have on the silver market.
The sheer amount of people… all potential new silver investors hitting at the same time.
And now the CGSE will give them exactly what they want.
Asked about his outlook for silver, Cheung (the CGSE president) said he expects silver prices to rise significantly in the first quarter of 2013.
“If precious metals investors believe metals prices would rise, they would pick silver now because gold prices are already high,” Cheung told Reuters, adding that jewellery manufacturers in Asia were using more silver and platinum in their products, boosting physical demand.
Here’s where the misguided government polices come in and why we believe silver will see a major surge now that presidential election is over. On September 13th, 2012, Fed chairman Ben Bernanke announced QE3 – yet another round of government stimulus that would inject billions into the economy each month.
In December 2012, Bernanke announced even more monetary stimulus.
You see as the Fed and global central banks pump billions of dollars into the economy it only devalues the dollar which leads to higher prices for real assets such as silver.
Just look at what silver prices did after Bernanke announced QE 2. After the Fed said it would employ the second round of stimulus, from August 2010 to August 2011 silver prices gained 141% to hit more than $43 an ounce.
QE2 consisted of the Federal Reserve inflating its asset sheet to buy about $700 billion in U.S. Treasury bonds to finance the budget deficit of the United States. As a result of this, the value of the U.S. dollar plunged while the exchange-traded fund for silver, iShares Silver Trust (NYSE: SLV), and the gold ETF SPDR Gold Shares (NYSE: GLD) both soared.
During the course of QE2, the exchange-traded fund for the U.S. dollar, PowerShares US Dollar (NYSE: UUP), fell from over $25 to the low $20s. By contrast, GLD rose from under $120 to more than $180 a share. SLV surged from under $20 to near $50.
Today SLV is trading around $33, still well beneath its peak hit during QE2, meaning it could be about to see another doubling in price.
Maybe even greater.
This time around, the world is swimming in stimulus money. Recently, governments in Europe and Japan launched quantitative easing policies similar to the Feds. Not to mention Bernanke pledged that the U.S. QE3 would be “open-ended.” That means it could go on for years. Hence the nickname “QE- Infinity.” China is another wildcard you can throw into the mix.
Editor’s Note:Do these charts and graphs prove that Bernanke’s aggressive money-printing policy is leading the U.S. economy to disaster?
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…
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 16% 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.
A few dealers that have an established reputation are:
- Kitco.com: Premiums are fair and the selection is usually quite good. They have offices in both New York and Montreal.
- Asset Strategies International Inc: This dealer is located in Rockville, MD. Asset Strategies also offers gold storage options outside U.S. borders.
- Camino Coin LLC: Burlingame, CA.
- American Precious Metals Exchange: Oklahoma City, OK.
- The Tulving Co.: Newport Beach, CA
- Gainesville Coins: Lutz, FL.
You can also acquire “paper silver” through Perth Mint Certificates (PMC). Vault-protected and insured, PMC offers the only government-backed bullion storage program on an allocated or unallocated basis [this means stored separately for you (allocated), or stored along with everyone else's (unallocated)].
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 USD $10,000 for your initial PMC purchase, with subsequent purchases at the USD $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.
Exhange-Traded Funds (ETFs) 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, precious metals expert Peter Krauth likes 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 (NYSE: SLV). With some $5.5 billion in assets, SLV is the world’s largest silver-backed ETF, using JPMorgan Chase & Co. (NYSE: JPM) 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 Peter Krauth’s favorite “silver-only” fund is the ETFS Physical Silver Shares (NYSE: SIVR). 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.
The ProShares Ultra Silver ETF (NYSEArca:AGQ) 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 does 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 continues its current bull run, and keeps moving higher, then AGQ becomes a great opportunity to leverage those gains.
Take a look at this chart comparing the performance of AGQ with iShares Silver Trust (NYSEArca:SLV), where SLV is a proxy for the price of silver, between January 2009 and now.
During that period SLV gained handsomely, moving from $11 to $33 to return about 200%.
AGQ, of course did much better. It soared from $10 all the way to $67, providing a 570% gain to shareholders.
But here’s where it gets even better…
If you measure returns from January 2009, right up to the peak of April 2011, SLV brought investors 370% gains as it climbed from $10 all the way to $47.
In that same timeframe, however, AGQ went from $10/unit to over $180, providing a stunning 1700% gains for investors.
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.
Right now, the silver futures markets are in what’s known as “backwardization.”
It’s a rare condition that occurs when the current cash price is higher than distant contract prices.
In other words, it costs more to buy silver today than it would to buy silver a month from now, or six months from now.
There’s only one reason for this – there’s a big shortage of physical silver on the open market. The fact is, supply is dwindling to lows never seen in history. One group of economists, geo-political scientists and commodity experts believes this will soon create dramatic increases in silver prices. In fact, they believe the price will rise so high, ordinary individuals will no longer be able to afford it. And this situation not unique to silver. Other commodities, like gold and oil are also affected. The work of this team has garnered so much attention, they were brought in front of the United Nations, UK parliament and numerous Fortune 500 companies to share much of their findings.
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