Investing In Silver Is Still A Shiny Option (SLV, AGQ, ZSL, SLW, ABX, GG, PPP)

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June 28, 2012 4:14pm NYSE:AGQ NYSE:SLV

Deborah Baratz: After the U.S. Federal Reserve‘s announcement last week that it would keep doing Operation Twistsilver prices dropped 4% the following day. 


Adding to the white metal’s decline was weakening in U.S. manufacturing, a declining Chinese factory sector and worries about the Eurozone.

It wasn’t a great week.

Jeffrey Sica, chief investment officer of SICA Wealth Management LLC, said to Reuters, “When you see slowdown in China and in the United States and the debt crisis accelerate in Europe, it leads people to believe that we will have significant depreciation, especially when commodities and precious metals prices have been so tied into the monetary policy.”

Since last week’s decline, silver prices have been mixed and yesterday (Wednesday) they closed down 0.13% to $26.91.

The markets have a slew of economic data to review and mull over this week along with the two-day European Council meeting that begins Thursday in Brussels.

Despite last week’s slump, there’s still reason to be investing in silver. Its prices in the first quarter fared better than the other precious metals.

As legendary investor Jim Rogers told a financial advisor summit Wednesday, the likelihood of more central bank action around the world is bullish for silver.

“Governments print money – that’s all they know,” said Rogers. “So own real assets like silver… and you’ll survive.”

Rogers said of all the precious metals if he had to buy just one, it would be silver.

Silver Prices and Macroeconomic Trends

In a 2011 report by the Silver Institute, a stronger silver industrial demand from the U.S. and Asia will be a key driver for silver growth globally through 2015; this will been seen from a strong demand from developing China and India markets.

Silver, similar to industrial metals, is tied to macroeconomic trends including supply and demand. From the demand for solar panel production and global manufacturing rebounding, silver could also see a greater demand this year.

In addition, new silver industrial applications such as auto catalysts, food packaging and superconductors have been estimated to rise, also contributing to a silver increase.

Here are a few options to consider when investing in silver.

Silver Wheaton Shares

Shares of the world’s largest metal streaming company, Silver Wheaton (NYSE:SLW), offer an interesting business model.

It doesn’t mine silver, but through upfront payments it gains the right to buy a fixed percentage of silver production in the future from miners. The miners will bear the production and supply risks.

Should silver prices rise, Silver Wheaton can take advantage of it through its agreements.

Primero Mining Corp. (NYSE:PPP), Goldcorp Inc. (NYSE:GG), and Barrick Gold Corp. (NYSE:ABX) all offer positive prospects with their mining outlooks – and Silver Wheaton has agreements with all of them. Combining these potential opportunities, Silver Wheaton could see 60% growth for its silver production by 2015.

Before miners increase production, Silver Wheaton can benefit from a current low point in the market. This would allow for some positive negotiating on the company’s end and greater payoffs when the silver market ticks upwards.

For the year-to-date, Silver Wheaton is down 10.65%, but recently RBC Capital Markets initiated coverage on it with an “Outperform” rating and $43 price target – a 64% premium to Wednesday’s closing price of $26.17.

Additional analysts have shared the optimism and the company has 905 “Buy” ratings, reported Schaeffer’s Investment Research.

Investing in Silver ETFs

Recently, silver ETFs have been trading near last year’s lows. Last week after the Fed’s news, traders expressed disappointment and prices dropped 6%, according to ETF Trends.

But volatility in silver prices and the ETF’s risk from macroeconomic developments mean profitable trading opportunities in the silver ETF market.

The iShares Silver Trust ETF (NYSEARCA:SLV) is down about 5% for the year. With these lower prices, silver buyers may be tempted to re-enter the market, reported CNBC. It noted SLV holdings have jumped 232 tons to-date this month.

In a recent Standard Chartered note, analysts wrote, “Investors are buying once more, with major physical ETF holdings up 2.2% from the early May trough. On a ratio basis vs. gold, silver is starting to look cheap.”

Related: ProShares Ultra Silver (NYSEARCA:AGQ), UltraShort Silver (NYSEARCA:ZSL).

Written By Deborah Baratz From Money Morning

We’re in the midst of the greatest investing boom in almost 60  years.  And rest assured – this boom is not about to end anytime soon.  You see, the flattening of the world continues to spawn new markets  worth trillions of dollars; new customers that measure in the billions;  an insatiable global demand for basic resources that’s growing   exponentially; and a technological revolution even in the most distant  markets on the planet.  And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact,  we believe this is where the only real fortunes will be made in the  months and years to come.


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