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Silver: All that Glitters "Isn't" Gold

By John Licata      Printer Friendly Version Bookmark and Share
Sep 20 2010 3:14PM

Silver Package

Silver prices are breaking out technically and it is our belief the metal will actually outperform gold in Q410 as investors look for ways to capitalize on upside potential vs the yellow metal. Throughout the gold rally seen over the past few years, silver has largely been seen as the evil stepchild of gold. However, a case can be made that investors are becoming more hip to silver’s allure, especially for portable electronic device battery technology. The growing enthusiasm for silver is most evident by the metal quietly trading near its highest level since 1980.

Let’s keep it real here. The Fed has thrown the kitchen sink at the U.S. economy including keeping rates at record low levels and yet the financial crisis has yet to see a sunny day (regardless of whatever media focused town hall meetings by our nation’s CEO imply). The unimpressive recovery in the domestic jobs market is a telling tale that the economic turnaround everyone has been waiting for will actually come later than expected. Why bring that up when speaking about silver? Consider silver is largely a by-product of gold, lead, copper and zinc. With that being said, it is our belief if the mining industry, which historically is cautious during recessionary times, slows growth plans until economics improve and demand lifts, silver may actually be in grave short supply when the financial marketplace does recover. That means stockpiles could be depleted sooner than later since we believe silver is starting to become more of industrial metal and better barometer of the true pulse of the economy than (gasp) even copper.

Uses of Silver







Water purification




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Based on the chart below, it appears silver companies are being valued a bit more than $5.50 per ounce. With the recent surge in silver prices, we believe the valuation of silver companies should be at least 11% higher, especially since we are forecasting for silver prices to hit $25.50 per ounce by the end of the first half of 2011 (a 22% move above present levels of $20.88). Maybe The Lone Ranger was right when he said, “Hi-ho, Silver, away?. In the long-running radio/television show “The Lone Ranger?, the title character used silver bullets because he didn’t shoot to kill. He wanted the bullet to be a symbol of justice. Maybe investors lightening their gold exposure to move into silver will do portfolios some justice as well.

Silver Explorer-Producer Valuation Chart

Keep in mind the gold/silver ratio, which measures how many ounces of silver would be needed to buy a troy ounce of gold, was above 72 in 2009. Today the level is below 62. This indicates to us that at current prices investors are viewing silver more and more as an investment alternative to gold. Nevertheless, in 1980, the last time silver prices saw a surge before this current rally, the gold/silver ratio was only 17 so those investors still looking to jump on silver express still have time in our opinion. With silver being less liquid than gold, investing in silver could be a more strategic way to capture a larger return in the precious metals space. If silver prices are gaining upside momentum and industrial demand is still fragile, silver could see robust demand for investors when this recession finally shows signs of being over.

Also, we wanted to point out we met with many executives teams of junior gold and silver companies last week in New York and expect much of the same conversations regarding higher demand and supply concerns to be made this week at Denver Gold Forum, a not for profit industry association of leading precious metals companies. Here is a link to the silver and gold companies presenting at the Denver Gold Forum today through tomorrow

So what’s on deck this week for silver? Outside of the Denver Gold Forum, all eyes are on Ben Bernanke. With Bernanke and the Fed meeting tomorrow, we actually are anticipating further downtrodden comments on the U.S. economic recovery. The somber view we are expecting from the Fed should heighten a move into silver and gold. With so much emphasis on gold prices hitting record levels, investors may be better served accumulating silver. So borrowing a line from The Lone Ranger, Blue Phoenix says, “Hi-ho, Silver, away?.

John J. Licata,
September 20, 2010



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