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Silver Flirts With $16 Mark

By Zachary Scheidt      Printer Friendly Version Bookmark and Share
Jun 2 2009 3:40PM

What it Means and Where Silver Trades From Here

We said it would happen quickly, but the recent move in the price of silver has caught many investors off guard. Just recently we sounded the alarm that silver was set to trade substantially higher. And now the shiny metal broke through the key $15 level, and is flirting with the $16 mark. We haven’t seen this price since last August - before the current recession really got underway.

So what’s driving this price? Is silver rising on economic fears? Do investors consider it a “safe haven?” Well the answer might surprise you. Ironically, silver is rising because of good news on our weak but possibly recovering economy. Let me explain…

Silver fits into two primary investment categories. It’s considered a “precious metal,” which means that it holds its value much better than paper currencies. So as dollars are printed and begin to flood the system, silver - as a stable storage of value - will hold its value compared to the lower value of each dollar. Put in reverse, you can see it now costs more dollars to buy an ounce of silver.

The second investment category is “industrial metals.” Silver fits into this category because it is used for all kinds of real world industries including electronics (Silver is an excellent conductor of electricity.), dentistry, photography and medicine. (Did you know silver has anti-bacterial qualities?) Silver is also used to make polyester and in specialized mirrors for technologies such as solar power.

Factors Driving Silver

So as we begin to see positive news regarding economic recovery, silver quickly becomes attractive to investors. Thursday, a government report was released showing that the number of layoffs was declining while orders for durable goods were increasing. An economic recovery would certainly be welcome, but would likely touch off a tinderbox full of inflation.

Inflation is a serious concern with this recovery. That’s because of the trillions of dollars pumped into the system in the form of stimulus packages and bailouts. Silver is an excellent way to protect savings against inflation because precious metals allow investors a stable way to store real value. 

At the same time, an increase in economic activity also drives up silver because more business activity means more consumption of silver. It’s a basic economic principal that when demand is higher, the price of a commodity will rise. Investors are expecting improvement in economic activity, which means that the demand for silver will ratchet higher as projects are underway.

Another important fact to remember is that silver supplies are growing thin - to the point where the U.S. Mint has actually had to halt production of specific coins until it can build up its reserves. If the U.S. Mint is having trouble with availability, you can imagine how standard producers are scrambling to get their hands on supplies.

Where We Go From Here

Looking ahead, I think we are just seeing the beginning of the price move. Silver has the potential to double or even triple the percentage move in gold because of its dual role. (Remember, it’s a precious metal and an industrial metal.) There’s no reason we couldn’t be talking about the $20 level in the next month, and by the end of the year that move could be exponentially higher. Some experts believe we could see the price reach triple-digits - or even break $1,000 over the course of several months.

While I’m not sure that we’ll see $1,000, I have confidence that silver will be an important investment theme in the coming weeks and months. And that makes silver a hot sector for your portfolio. Don’t let silver’s move occur without claiming your profits and protecting your investments.

Zachary Scheidt
Editor, Taipan Publishing Group



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